<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
----- OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995.
TRANSITION REPORT PURSUANT TO SECTION 13 OR
----- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission File Number 1-2677
QUAKER STATE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 25-0742820
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
255 Elm Street
Oil City, Pennsylvania 16301
(Address of Principal Executive Offices)
(Zip Code)
(814) 676-7676
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of July 31, 1995, 32,824,157 shares of Capital Stock, par value
$1.00 per share, of the registrant were outstanding.
<PAGE> 2
PART I.
FINANCIAL INFORMATION
<PAGE> 3
CONSOLIDATED STATEMENT OF OPERATIONS
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
6/30/95 6/30/94 6/30/95 6/30/94
-----------------------------------------------------------------------------------------------------------------------------
(in thousands except per share data, unaudited)
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues $ 257,698 $ 161,545 $ 497,231 $ 330,060
Other, net 1,814 807 5,609 2,073
-----------------------------------------------------------------------------------------------------------------------------
259,512 162,352 502,840 332,133
COSTS AND EXPENSES
Cost of sales and operating costs 182,888 110,587 354,136 220,516
Selling, general and administrative 59,696 42,071 115,711 90,857
Depreciation, depletion and amortization 7,692 5,003 14,570 10,004
Interest 1,582 1,128 3,118 2,403
Unusual item (Note 6) 15,800 -- 15,800 --
-----------------------------------------------------------------------------------------------------------------------------
267,658 158,789 503,335 323,780
-----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (8,146) 3,563 (495) 8,353
-----------------------------------------------------------------------------------------------------------------------------
PROVISION FOR (BENEFIT FROM) INCOME TAXES
Current (7,100) 2,685 (400) 6,000
Deferred 3,482 (587) 212 (1,317)
-----------------------------------------------------------------------------------------------------------------------------
(3,618) 2,098 (188) 4,683
-----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (4,528) 1,465 (307) 3,670
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES (NOTE 11) 1,303 3,604 2,678 6,982
-----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (3,225) $ 5,069 $ 2,371 $ 10,652
=============================================================================================================================
PER SHARE:
INCOME (LOSS) FROM CONTINUING OPERATIONS $(.14) $.05 $(.01) $.13
INCOME FROM DISCONTINUED OPERATIONS .04 .14 .09 .26
-----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE $(.10) $.19 $ .08 $.39
=============================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 31,596 27,360 31,591 27,358
=============================================================================================================================
CASH DIVIDENDS PAID PER SHARE $.10 $.10 $.20 $.20
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE> 4
CONSOLIDATED STATEMENT OF CASH FLOWS
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the six months ended June 30 1995 1994
----------------------------------------------------------------------------------------------------------------
(in thousands, unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,371 $ 10,652
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 19,289 15,465
Unusual item 15,800 --
Deferred income taxes and investment tax credit 1,861 (121)
Increase (decrease) from changes in:
Receivables (13,945) (6,336)
Inventories (1,988) (5,182)
Other current assets (268) (911)
Accounts payable 3,245 525
Accrued liabilities (7,924) 1,687
Other (16,195) (1,934)
Changes in discontinued insurance operations -- 5,224
----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,246 19,069
----------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment 3,175 1,544
Capital expenditures (16,189) (11,555)
Proceeds from sale of discontinued coal operation assets 412 1,568
Discontinued insurance operations
Proceeds from sale of bonds and securities -- 37,046
Purchase of bonds and securities -- (49,259)
----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (12,602) (20,656)
----------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid (6,303) (5,457)
(Payments on) Proceeds from notes payable (34) 320
Payments on long-term debt (1,464) (137)
----------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (7,801) (5,274)
----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (18,157) (6,861)
Cash and cash equivalents at beginning of year:
Other than discontinued insurance operations 29,805 6,220
Discontinued insurance operations -- 9,408
----------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents at beginning of year 29,805 15,628
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period:
Other than discontinued insurance operations 11,648 3,063
Discontinued insurance operations -- 5,704
----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $11,648 $ 8,767
================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
CONSOLIDATED BALANCE SHEET
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
6/30/95 12/31/94*
---------------------------------------------------------------------------------------------------------------------------
(in thousands except share data) (unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,648 $ 29,805
Accounts and notes receivable, less allowance of
$3,049 at 6/30/95 and $2,185 at 12/31/94. 104,920 91,858
---------------------------------------------------------------------------------------------------------------------------
Inventories: (Note 2)
Crude oil 1,816 976
Finished and in-process petroleum products 45,533 49,252
Other 27,797 22,862
---------------------------------------------------------------------------------------------------------------------------
Total inventories 75,146 73,090
---------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 9,929 11,790
Other current assets 11,637 11,708
Discontinued operation assets (Note 11) 48,052 3,889
---------------------------------------------------------------------------------------------------------------------------
Total current assets 261,332 222,140
Property, plant, and equipment, net of accumulated depreciation
and depletion of $202,126 at 6/30/95 and $190,986 at 12/31/94. 199,962 199,983
Discontinued operation assets (Note 11) -- 48,257
Other assets 170,401 159,638
---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 631,695 $630,018
===========================================================================================================================
LIABILITIES
Current Liabilities:
Accounts payable $ 61,711 $ 58,500
Accrued liabilities 66,363 58,487
Installments on long-term debt 3,314 3,714
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 131,388 120,701
---------------------------------------------------------------------------------------------------------------------------
Long-term debt, less debt payable within one year 68,471 69,535
Other long-term liabilities 183,456 187,932
---------------------------------------------------------------------------------------------------------------------------
Total liabilities 383,315 378,168
---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 3)
STOCKHOLDERS' EQUITY
Capital stock, $1.00 par value; authorized shares, 95,000,000;
issued shares, 31,513,968 at 6/30/95 and 31,517,305 at 12/31/94 31,514 31,517
Treasury stock, at cost, 49,786 shares at 6/30/95 and 33,498 shares at 12/31/94 (690) (467)
Additional capital 120,757 120,131
Retained earnings 100,354 104,286
Cumulative foreign currency translation adjustment (488) (709)
Unearned compensation (3,067) (2,908)
---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 248,380 251,850
---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 631,695 $630,018
===========================================================================================================================
<FN>
*Amounts are from December 31, 1994 audited balance sheet and footnotes.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
OTHER FINANCIAL INFORMATION
Quaker State Corporation and Subsidiaries
The sales and operating revenues and contributions to income from continuing
operations, by industry segment, are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED SIX MONTHS ENDED
6/30/95 6/30/94 6/30/95 6/30/94
----------------------------------------------------------------------------------------------------------------------------------
(in thousands, unaudited)
<S> <C> <C> <C> <C>
SALES AND OPERATING REVENUE
Motor oil $ 208,493 $ 112,366 $ 399,577 $ 235,047
Fast lube 31,550 27,967 60,264 54,126
Truck-Lite 23,934 26,558 49,617 51,218
Docks 889 754 1,662 1,447
Intersegment sales (7,168) (6,100) (13,889) (11,778)
----------------------------------------------------------------------------------------------------------------------------------
Total sales and operating revenue $ 257,698 $ 161,545 $ 497,231 $ 330,060
==================================================================================================================================
OPERATING PROFIT (LOSS)
Motor oil $ 6,700 $ 3,064 $ 12,874 $ 8,268
Fast lube 2,481 1,478 4,140 2,779
Truck-Lite 3,581 4,570 7,343 7,434
Docks 276 250 481 469
----------------------------------------------------------------------------------------------------------------------------------
Total operating profit from continuing operations 13,038 9,362 24,838 18,950
Corporate income 937 732 2,577 1,253
Interest expense (1,510) (1,159) (3,023) (2,318)
Corporate expenses (4,811) (5,372) (9,087) (9,532)
Unusual item* (15,800) -- (15,800) --
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes $ (8,146) $ 3,563 $ (495) $ 8,353
==================================================================================================================================
<FN>
*The restructuring charge of $15,800 includes $9,280 that relates
to Motor oil.
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
1. In the opinion of management of Quaker State Corporation (the company),
the accompanying financial statements include all adjustments which
are necessary to a fair statement of the results for such periods. All
of these adjustments are of a normal recurring nature. These statements
should be read in conjunction with the financial statements included as
a part of the 1994 annual report on Form 10-K.
2. Inventories are stated at the lower of cost or market. Cost is
determined on the last-in, first-out (LIFO) basis for all crude oil,
the majority of company refined petroleum and vehicular lighting
products; and on the first-in, first-out (FIFO) basis for other
inventories. The reserve to reduce the carrying value of inventories
from FIFO basis to LIFO basis amounted to $22,255,000 at June 30, 1995,
and $20,267,000 at December 31, 1994.
In the second quarter of 1995 certain inventory quantities were reduced
resulting in liquidations of LIFO inventory. The effect of these
liquidations was an increase in net income of $900,000, or $.03 per
share.
3. In December 1993, the United States commenced a lawsuit against the
company in the U.S.District Court for Northern District of West
Virginia. The complaint alleges the company violated the federal
Resource Conservation and Recovery Act and the federal Clean Air Act at
the Congo refinery on various dates starting in 1980 and seeks civil
penalties not to exceed $25,000 per day for each violation. The
company intends to vigorously defend this lawsuit. However, the
ultimate outcome of this litigation cannot presently be determined.
In addition, the company has received notices from the EPA and
others that it is a "potentially responsible party" relative to
certain waste disposal sites identified by the EPA and may be required
to share in the cost of cleanup. The company has accrued for all
matters which are probable and can be reasonably estimated.
In April 1994, purported class actions were commenced in the U.S.
District Court for the Western District of Pennsylvania against
the company and two other oil companies. The complaints allege
violations of Section 1 of the Sherman Act. In July 1995, the United
States District Court certified the proceeding as a class action and
denied the defendants' motion for summary judgment. The company
believes there is no basis for the allegations in the complaint and
intends to defend the matter vigorously.
Contingent liabilities of an indeterminate amount exist in
connection with suits and claims arising in the ordinary course of
business.
In the opinion of management, all matters discussed above are
adequately accrued for or covered by insurance or, if not so
provided for, are without merit or the disposition is not anticipated
to have a material effect on the company's financial position; however,
one or more of these matters could have a material effect on future
quarterly or annual results of operations when resolved.
4. The effective tax rate of 38% for continuing operations is higher than
the 35% federal rate due to the added impact of state and foreign
taxes. The effective tax rate for continuing operations of 38% is lower
than the 1994 rate of 56% due to lower income from continuing
operations, a reduction in the estimated state tax rate, and other
changes in estimates.
(more)
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
5. On July 11, 1995, Quaker State completed the acquisition of all
the stock of Slick 50 through the merger of Slick 50 into a wholly owned
subsidiary of Quaker State named Quaker State--Slick 50, Inc. The
consideration given in the acquisition included payment of
approximately $22,000,000 in cash and the issuance of 1,260,403 shares
of Quaker State capital stock. In addition, the company paid
approximately $11,000,000 to satisfy certain Slick 50 indebtedness
outstanding prior to the closing. Under the terms of the Merger
Agreement, additional consideration may be payable by Quaker State for
Slick 50 stock depending upon the merged company's performance during
the fiscal years ending December 31, 1996, 1997 and 1998 but subject to
offset for indemnification obligations of Slick 50 stockholders under
the Merger Agreement.
The source of funds used for cash consideration in the transaction
and the payment of Slick 50 indebtedness was borrowing under Quaker
State's $45,000,000 Revolving Credit Agreement.
The acquisition will be accounted for under the purchase method.
6. On April 28, 1995 the company announced plans to restructure its
organization to integrate recent acquisitions, consolidate management
and administrative activities, and move its corporate headquarters and
Motor Oil Division to the Dallas, Texas area. The company plans to
complete the move by the first quarter of 1996. The pre-tax costs and
expenses associated with the restructuring and relocating the workforce
and closing the headquarters facility in Oil City, Pennsylvania and its
administrative unit in Shreveport, Louisiana will approximate
$25,000,000. A charge of $15,800,000 was recorded in the second quarter,
of which $9,280,000 related directly to the Motor Oil Division. The
after tax restructuring charge recorded in the quarter was $9,490,000.
The remainder will be expensed as incurred.
7. On April 28, 1995 the company announced that the Board of Directors
approved a $25,000,000 development project for the Red River port in
Shreveport, Louisiana, which will become the company's manufacturing and
technical headquarters.
8. The following schedule is prepared on a pro forma basis as though
Specialty and Westland had been acquired as of the beginning of 1994,
after including the impact of adjustments, such as amortization of
intangible assets, intercompany sales elimination and related tax
effects.
<TABLE>
<CAPTION>
For the quarter ended and six months ended June 30, 1994
------------------------------------------------------------------------------------------------------------
(in thousands except per share data, unaudited)
------------------------------------------------------------------------------------------------------------
For the quarter ended For the Six months ended
6/30/94 6/30/94
-------------------------------------------------------
<S> <C> <C>
REVENUES $248,726 $483,979
Income from continuing operations (Note 11) $ 4,328 $ 6,520
Income per share from continuing operations $ 0.14 $ 0.21
-------------------------------------------------------
</TABLE>
(more)
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
The pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the periods
presented. In addition, they are not intended to be a projection of
future results and do not reflect any synergies that might be achieved
from combining the operations.
9. In March 1995, the Financial Accounting Standards Board issued Standard
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" which establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used
and for long-lived assets and certain identifiable intangibles to be
disposed of. The new Standard must be implemented in 1996. The company
is currently evaluating what effect, if any, this Standard will have on
its financial position and results of operations.
10. On May 25, 1995 the company's stockholders approved the Amendment of
Quaker State's Certificate of Incorporation to increase the authorized
number of shares of Quaker State's capital stock from 37,500,000 to
95,000,000 shares.
11. On July 26, 1995 Quaker State signed a definitive agreement to sell
most of the assets of its Natural Gas Exploration and Production
Division to Belden & Blake Corporation of Canton, Ohio for a purchase
price of $56,000,000 subject to certain possible adjustments.
Accordingly, the operating results of Natural Gas Exploration and
Production have been reported as a discontinued operations in the
accompanying Consolidated Statement of Operations for the period ending
June 30, 1995. Prior year and prior period financial statements have
been reclassified to conform to the current period presentation.
Completion of the transaction occured on August 9, 1995. The company
expects to record a gain from the sale of these assets which will be
reported under discontinued operations in the third quarter.
<PAGE> 10
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
-----
The consolidated financial statements and related notes including information
about Quaker State Corporation's (the company) operations in different segments
included in this Form 10-Q should be read as an integral part of this review.
-----
Quaker State Corporation reported a 1995 second quarter net loss of
$3,225,000, or $.10 per share, compared to net income of $5,069,000, or $.19
per share, last year. Six month net income was $2,371,000, or $.08 per share,
compared to $10,652,000, or $.39 per share, in 1994. The weighted average
shares of capital stock outstanding for the period ending June 30, 1995
increased over 4,000,000 shares versus 1994, primarily as the result of issuing
additional shares in the third quarter of 1994 for the acquisition of the
Specialty and Westland companies. Sales and operating revenues from continuing
operations were $257,698,000 and $497,231,000 for the second quarter and six
months of 1995 compared to $161,545,000 and $330,060,000 for these periods in
1994. The 1995 revenues included $88,010,000 and $164,596,000 of additional
sales for the second quarter and six months from the Specialty and Westland
companies that were acquired in the third quarter of 1994. The 1995 second
quarter and six months expenses include a pretax restructuring charge of
$15,800,000 related to its announced relocation to the Dallas, Texas area.
Total costs under the restructuring plan are estimated to be
$25,000,000 with the remainder of such costs to be expensed as incurred. This
charge accounted for the pretax loss from continuing operations of $8,146,000
and $495,000 for the second quarter and six months of 1995. Operating profits
from continuing operations, excluding restructuring charges, in 1995 increased
39%, to $13,038,000, in the second quarter and 31%, to $24,838,000 for the
six months reflecting higher sales for branded motor oil and improved Q Lube
operating results.
On May 25, 1995, the company and Belden & Blake Corporation signed a
letter of intent for Belden & Blake Corporation to acquire most of the assets
of the company's Natural Gas Exploration & Production Division (E&P). As a
result, the E&P operations have been accounted for as a discontinued operation
on the Consolidated Statement of Operations for the period ending June 30, 1995
and its operating results have been segregated and reported as a discontinued
operation. Prior year and prior period financial statements have been
reclassified to conform to this presentation. Income from discontinued
operations in 1994 also include the insurance operations which were
discontinued last year. Income from discontinued operations was $1,303,000, or
$.04 per share, and $2,678,000, or $.09 per share, for the second quarter and
first six months of 1995 compared to $3,604,000, or $.14 per share, and
$6,982,000, or $.26 per share, last year.
Motor Oil Division operating profits, excluding restructuring charges of
$9,280,000, were $6,700,000 and $12,874,000 for the second quarter and first
six months of 1995 compared to $3,064,000 and $8,268,000 last year. Revenues
of $208,493,000 and $399,577,000 in these periods increased 86% and 70% over
1994 and included the 1995 sales from the Specialty and Westland companies that
were purchased in the third quarter of 1994. Operating profits improved as a
result of a 14% second quarter and 2%
<PAGE> 11
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
-----
year-to-date increase in branded motor oil sales volume. In addition, refinery
product margins improved as a result of higher sales prices for base stocks,
gasoline and fuel oil. Operating results also include $1,500,000 of LIFO
inventory profits recorded in the second quarter as a result of liquidating
certain inventory quantities. In the division's private label and industrial
lubricants business, operating results improved in the second quarter as first
quarter sales price increases partially offset the impact of higher material
costs.
Q Lube reported second quarter operating profits of $2,481,000 on sales
and operating revenues of $31,550,000 compared to profits of $1,478,000 on
revenues of $27,967,000 last year. Six month operating profits were $4,140,000
on sales and operating revenues of $60,264,000 compared to profits of
$2,779,000 on revenues of $54,126,000 in 1994. Year-to-date car counts in 1995
increased 6% and average per car sales were up 5% to account for the revenue
and operating result improvements. Higher advertising, depreciation and
amortization expenses resulting from the conversion of the fast lube outlets to
the new Q Lube format partially offset the improvement in operating results.
This conversion will continue in 1995 with approximately 100 additional stores
expected to be completed by the end of the year.
Truck-Lite operating profits in the second quarter and six months of 1995
were $3,581,000 and $7,343,000 compared to $4,570,000 and $7,434,000 in 1994.
Revenues were down 10% to $23,934,000 in the second quarter and down 3% to
$49,617,000 for the six months. Lower sales volume and negative product mix
adversely affected operating results. Automotive sales slowed down in the
second quarter as the overall car market has softened. Management was able to
reduce year-to-date operating expenses by approximately $1,500,000 to
partially offset the slowdown in the business.
Year-to-date corporate income of $2,577,000 compared to $1,253,000 and
included approximately $1,000,000 of additional royalty payments received for
coal deliveries made by the purchaser of a long-term coal sales agreement. Six
month interest expense in 1995 increased 30% to $3,023,000 as a result of debt
assumed in the acquisition of Westland Oil Company, Inc. in the third quarter
of 1994. Corporate expenses in 1995 were $4,811,000 and $9,087,000 for the
quarter and six months compared to $5,372,000 and $9,532,000 last year. Lower
salary and benefit expenses account for the reductions in corporate expenses.
An unusual charge for $15,800,000 was recorded in the second quarter to
reserve for severance costs, employee benefit expenses and the write-off of
assets related to the company's relocation to the Dallas, Texas area.
Approximately $9,280,000 of this charge relates to the Motor Oil Division.
The effective tax rate of 38% for continuing operations is higher than
the 35% federal rate due to the added impact of state and foreign taxes. The
effective tax rate for continuing operations of 38% is lower than the 1994 rate
of 56% due to lower income from continuing operations, a reduction in the
estimated state tax rate, and other changes in estimates.
<PAGE> 12
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
-----
Cash provided by operations for the first six months of 1995 was
$2,246,000 compared to $19,069,000 in 1994. This decrease resulted from
additional working capital requirements and the loss of operating cash flows
from the insurance operations which were sold in the third quarter of 1994.
Cash used by discontinued coal activities in 1995 was $5,757,000 compared to
$8,868,000 last year. Cash used by investing activities included capital
expenditures of $16,189,000 and proceeds from the sale of property and
equipment of $3,587,000, of which $412,000 related to the discontinued coal
operations. Cash used in financing activities was $7,801,000 and included
$6,303,000 paid for dividends and $1,464,000 paid on long-term debt, primarily
related to the Westland subsidiary acquired in 1994.
On April 28, 1995, the company announced that the Board of Directors
approved a $25,000,000 development project for the Red River port in
Shreveport, Louisiana which will become the company's lubricants manaufacturing
and technical headquarters.
On May 25, 1995 the company's stockholders approved an amendment to the
company's Certificate of Incorporation to increase the authorized number of
shares of Quaker State's capital stock from 37,500,000 to 95,000,000 shares.
On July 11, 1995, the company completed an Agreement and Plan of Merger
to acquire Slick 50, Inc. (Slick 50), by merger into a newly formed wholly-owned
subsidiary of the company. The merger consideration included the payment of
approximately $22,000,000 in cash and the issuance of 1,260,000 shares of
Quaker State capital stock. In addition, the company paid approximately
$11,000,000 to satisfy certain Slick 50 indebtedness outstanding prior to the
closing. The operating results of Slick 50 will be reported as part of the
Motor Oil Division business segment from the date of acquisition. (Refer to
Note 5.)
On July 26, 1995 the company signed a definitive agreement to sell
certain assets of its Natural Gas Exploration and Production Division to
Belden & Blake Corporation of Canton Ohio for a purchase price of $56,000,000
subject to certain possible adjustments. Completion of this transaction
occurred on August 9, 1995. The company expects to record a gain from the sale
of these assets which will be reported under discontinued operations in the
third quarter. (Refer to Note 11.) The company is in the process of selling
the remaining Natural Gas Exploration and Production Division assets.
On July 27, 1995 the Board of Directors of the company declared a
quarterly dividend of 10 cents per share payable September 15 to shareholders
of record as of August 15, 1995.
In March 1995, the Financial Accounting Standards Board issued Standard
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The new Standard must be
implemented in 1996. The company is currently evaluating what effect, if any,
this Standard will have on its financial position and results of operations.
<PAGE> 13
PART II.
OTHER INFORMATION
QUAKER STATE CORPORATION AND SUBSIDIARIES
Item 1. LEGAL PROCEEDINGS
-----------------
In its annual report on Form 10-K for the year ended December 31, 1994,
Quaker State reported that in April 1994 Lazy Oil, Inc., a Pennsylvania
corporation, commenced a class action in the United States District Court for
the Western District of Pennsylvania against Witco Corporation, Quaker State
and Pennzoil Company. Three similar actions were subsequently commenced and
were consolidated with the original action. The consolidated amended complaint
alleges violations of Section 1 of the Sherman Act, based upon an allegation
that the defendants, since at least January 1, 1981, combined and conspired to
fix, lower, maintain and stabilize the purchase price of Pennsylvania Grade
crude oil purchased from the plaintiffs and others. In July 1995, the United
States District Court certified the proceeding as a class action and denied the
defendants' motion for summary judgement, without prejudice to renewal after
the close of discovery. Discovery in this proceeding is continuing.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-------------------------------------------------
On May 25, 1995, Quaker State held its Annual Meeting of Stockholders,
at which three items were submitted to a vote of security holders. The first
item voted upon was the election of directors, and the following individuals
were elected as directors, with the following votes for or withheld from each:
Name Votes For Votes Withheld
---- --------- --------------
Herbert M. Baum 27,165,534 748,498
Leonard M. Carroll 27,136,850 777,242
Conrad A. Conrad 27,187,346 726,686
Laurel Cutler 27,150,456 763,576
C. Frederick Fetterolf 27,151,087 762,945
Thomas A. Gardner 27,147,499 766,533
F. William Grube 27,187,781 726,251
Forrest R. Haselton 27,140,948 773,084
Delbert J. McQuaide 27,185,670 728,362
L. David Myatt 27,189,938 724,094
Raymond A. Ross, Jr. 27,177,980 736,052
Lorne R. Waxlax 27,155,370 758,662
The second matter submitted to a vote of security holders was approval
of the Amendment of Quaker State's Certificate of Incorporation to increase the
authorized number of shares of Quaker State's capital stock from 37,500,000 to
95,000,000 shares.
<PAGE> 14
On this second matter, 22,927,640 shares were voted for the proposition,
4,748,952 shares were voted against and 237,440 shares abstained.
The third matter submitted to a vote of security holders was the
ratification of the appointment of the firm of Coopers and Lybrand L.L.P. as
Quaker State's independent auditors for the fiscal year ending December 31,
1995. On this third matter, 27,643,152 shares were voted for the proposition,
162,157 shares were voted against and 108,723 shares abstained.
Item 5. Other Information.
------------------
On July 26, 1995, Quaker State signed a definitive agreement to sell
most of the assets of its Natural Gas Exploration and Production Division to
Belden & Blake Corporation of Canton, Ohio for a purchase price of
approximately $56,000,000 subject to certain adjustments. The purchase price
was determined in arms length negotiations. This transaction was completed on
August 9, 1995. The sale included interests in approximately 1,460 producing
oil and gas wells in New York, Ohio, Pennsylvania and West Virginia,
approximately 250,000 leasehold acres and approximately 250 miles of gas
gathering lines. There is no material relationship between Quaker State and
Belden & Blake Corporation, other than purchases by Quaker State of crude oil
in the ordinary course of business.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) 2. Asset Purchase Agreement dated July 26, 1995 among
Quaker State Corporation, QSE & P, Inc. and Belden & Blake
Corporation, filed herewith.
3(i). Composite Certificate of Incorporation, as amended
effective July 3, 1995, filed herewith.
4. Amendment No. 5 to Credit Agreement, dated as of July 7,
1995, by and among Quaker State, certain Banks and PNC Bank, as
agent for the Banks, filed herewith.
11. Computation of Net Income per Share for the quarters and
six months ended June 30, 1995 and 1994, filed herewith.
27. Financial Data Schedule, filed herewith.
(b) No reports on Form 8-K were filed by Quaker State during
the quarter ending June 30, 1995. A current report on Form 8-K was
filed by Quaker State on July 24, 1995. The report disclosed under
Item 2 that on July 11, 1995, Quaker State completed the
acquisition of Slick 50, Inc. I by merger into a newly formed,
wholly owned subsidiary of Quaker State. No financial statements
were included with this report on Form 8-K, and the required
financial statements and pro forma financial information will be
filed no later than 60 days following the required filing date for
this report on Form 8-K.
<PAGE> 15
QUAKER STATE CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUAKER STATE CORPORATION
(Registrant)
Date 8/11/95 By /s/ Herbert M. Baum
---------------- ----------------------------------
Herbert M. Baum
Chairman of the Board and
Chief Executive Officer
Date 8/11/95 By /s/ C. A. Conrad
---------------- ----------------------------------
C. A. Conrad
Vice Chairman and
Chief Financial Officer
<PAGE> 16
QUAKER STATE CORPORATION
EXHIBIT LIST
------------
The following exhibits are required to be filed with this quarterly
report on Form 10-Q.
Exhibit No. and Document
------------------------
<TABLE>
<S> <C>
2. Asset Purchase Agreement dated July 26, 1995 among Quaker
State Corporation, QSE & P, Inc. and Belden & Blake
Corporation, filed herewith.
3(i). Composite Certificate of Incorporation, as amended effective
July 3, 1995, filed herewith.
4. Amendment No. 5 to Credit Agreement, dated as of July 7, 1995,
by and among Quaker State, certain Banks and PNC Bank, as
agent for the Banks, filed herewith.
11. Computation of Net Income per Share for the quarters and six
months ended June 30, 1995 and 1994, filed herewith.
27. Financial Data Schedule, filed herewith.
</TABLE>
<PAGE> 1
Exhibit 2
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated July 26, 1995, by and among QUAKER STATE
CORPORATION (hereinafter referred to as "Quaker State"), QSE&P, INC.
(hereinafter referred to as "QSE&P"), a wholly-owned subsidiary of Quaker State
(said corporations being hereinafter referred to as "Sellers"), and BELDEN &
BLAKE CORPORATION (hereinafter referred to as "Buyer").
WITNESSETH THAT:
WHEREAS, Sellers own oil and gas properties and related assets
primarily located in the Appalachian Basin including working, royalty and
overriding royalty interests in oil and gas wells, natural gas gathering
systems, gas storage rights, undeveloped oil and gas leases and fee mineral
interests, vehicles and oilfield equipment and supplies and other assets, and
WHEREAS, Quaker State or QSE&P is the general partner or
managing general partner of the limited and general partnerships listed in
Annex A (the "Partnerships") which own working interests or production payment
interests in certain oil and gas wells, including Quaker State 1990-1 Drilling
Fund, L.P., Quaker State 1992-1 Drilling Fund, L.P. and Quaker State 1994-1
Drilling Fund, L.P. (such Drilling Funds collectively, the "Drilling
Partnerships"), and Quaker State 1990-2 Gas Production Fund, L.P., Quaker State
1992-2 Gas Production Fund, L.P. and Quaker State 1994-2 Gas Production Fund,
L.P. (such Gas Production Funds collectively, the "Production Partnerships"),
and
<PAGE> 2
WHEREAS, as general partner or managing general partner,
Quaker State or QSE&P has the power and authority to sell any or all of the
properties and assets of five of the Partnerships, namely Quaker State 1986-1
Drilling Fund, L.P., Quaker State 1986-2 Drilling Fund, L.P., Quaker State
1987-1 Drilling Fund, L.P., Quaker State 1988-1 Drilling Fund, L.P., and Quaker
State 1989-1 Drilling Fund, L.P. (said Partnerships being hereinafter referred
to as the "Selling Drilling Funds"), and
WHEREAS, Quaker State or QSE&P acts as operator of the oil and
gas wells of each of the Partnerships under operating agreements with the
Partnerships and as operator of certain other oil and gas wells in which third
parties own working interests under joint operating agreements with such
working interest owners, and
WHEREAS, Sellers desire to sell, assign and transfer, or cause
to be sold, assigned and transferred, to Buyer, and Buyer desires to purchase
and acquire from Sellers and the Selling Drilling Funds, certain properties,
assets and rights of Sellers, including the rights and obligations of Sellers
under the said operating agreements and joint operating agreements, and certain
properties and assets of the Selling Drilling Funds, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties made herein and of the mutual benefits to be
derived hereby, the parties hereto have agreed and, by these presents, do
hereby agree as follows:
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<PAGE> 3
ARTICLE I
PURCHASE AND SALE
------------------
1.1 AGREEMENT TO SELL AND PURCHASE. Upon the terms and subject to
the conditions herein set forth, on the Closing Date (as defined in Section
7.1) Sellers shall sell, convey and assign (or cause to be sold, conveyed and
assigned) to Buyer, and Buyer shall purchase and acquire, the Assets (as
defined in Section 1.2) and the right to receive the Production Payment and the
Partnership Revenue Interests pursuant to Section 1.4, for the price of
Fifty-Five Million Seven Hundred Thirty-Three Thousand Nine Hundred Fourteen
Dollars ($55,733.914.00) (the "Purchase Price"), adjusted as provided in
Section 7.2 (as so adjusted, the "Adjusted Purchase Price"), and Buyer shall
assume the Assumed Obligations as provided in Section 1.6.
1.2 ASSETS. The term "Assets" means the following assets of
Sellers and the Selling Drilling Funds described in paragraphs (a) through (h)
of this Section 1.2 (except to the extent that any of the following are
Excluded Assets as defined in Section 1.3):
(a) PRODUCING PROPERTIES. All the right, title and interest of
Sellers and the Selling Drilling Funds in and to (i) the active and registered
inactive oil and gas wells (the "Wells") listed in Schedule 1.2(a)(i) of the
Disclosure Schedule to be delivered after the date hereof to Buyer by Sellers
and initialed by the parties (the "Disclosure Schedule") and all tangible
personal property and fixtures directly associated with the Wells or primarily
used in the operation thereof or the production, treatment, processing, storage
or gathering of oil, gas or other hydrocarbons therefrom, including all pumping
units, engines, motors and electric lines, casing, tubing, rods, pumps,
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<PAGE> 4
above ground tanks, separators, meters, valves, compressors, sales lines, flow
lines, connections and lateral lines and other ancillary equipment used
primarily in the operation of the Wells; (ii) all oil and gas leases listed in
Schedule 1.2(a)(ii) of the Disclosure Schedule embracing real property on which
the Wells are located (the "Leases") and the related unitization,
communitization and pooling agreements listed therein, together with all
working, royalty, overriding royalty and other interests of Sellers and the
Selling Drilling Funds in the Leases or such real property or attributable to
production therefrom; (iii) the fee oil and gas interests associated with the
Wells that are described in Schedule 1.2(a)(iii) of the Disclosure Schedule;
and (iv) all easements, rights-of-way, licenses and roads necessary for the
operation of the Wells or the production, storage, collection or gathering of
oil, gas or other hydrocarbons therefrom that are described in Schedule
1.2(a)(iv) of the Disclosure Schedule (collectively, the "Producing
Properties").
(b) GAS GATHERING SYSTEMS. All of Sellers' right, title and
interest in and to the gas gathering systems described below (the "Gas
Gathering Systems"), together with all rights-of-way, easements, licenses,
meter site agreements and compressor site agreements covering real property on
which the Gas Gathering Systems are located, and all pipes, valves, meters,
compressors and compression facilities directly associated with the operating
thereof:
(i) the QSE&P gas gathering system
located in parts of Warren, Venago
and Crawford Counties, Pennsylvania,
the approximate location and route
of which is shown in Schedule
1.2(b)(i) of the Disclosure
Schedule;
(ii) the Stage Coach gas gathering system
located in parts of Tioga County,
New York and Bradford County,
-4-
<PAGE> 5
Pennsylvania, the approximate
location and route of which is shown
in Schedule 1.2(b)(ii) of the
Disclosure Schedule;
(iii) the Braxton County gas gathering
system located in parts of Braxton
and Nicholas Counties, West
Virginia, the approximate location
and route of which is shown in
Schedule 1.2(b)(iii) of the
Disclosure Schedule; and
(iv) the Pettet gas gathering system
located in parts of Morgan and Perry
Counties, Ohio, the approximate
location and route of which is shown
in Schedule 1.2(b)(iv) of the
Disclosure Schedule.
(c) OPERATING RIGHTS. All the right, title and interest of
Sellers in, to and under the operating agreements and joint operating
agreements relating to oil and gas exploration and production that are listed
in Schedule 1.2(c) of the Disclosure Schedule (the "Operating Agreements") and
to the contract administrative and operating fees chargeable to third parties
thereunder by Sellers (the "Operating Rights").
(d) UNDEVELOPED ACREAGE. All the right, title and interest of
Sellers in and to all undeveloped oil and gas leases held by primary term
listed in Schedule 1.2(d) of the Disclosure Schedule (the "Undeveloped
Leases"), and all subsurface fee mineral interests associated with Sellers' oil
and gas operations wherever located described in Schedule 1.2(d) of the
Disclosure Schedule (the "Undeveloped Acreage").
(e) GAS STORAGE RIGHTS. All of the natural gas storage rights of
Sellers in the Stage Coach Field in Tioga County, New York and Bradford County,
Pennsylvania, and all the right, title and interest of Sellers in the wells and
leases associated therewith listed in Schedule 1.2(e) of the Disclosure
Schedule (the "Gas Storage Rights").
(f) NON-OPERATED ROYALTIES AND OVERRIDING ROYALTIES. All royalty
and overriding royalty interests of Sellers in and under the oil and gas leases
listed in
-5-
<PAGE> 6
Schedule 1.2(f) of the Disclosure Schedule and in the wells operated
by third parties listed in Schedule 1.2(f) of the Disclosure Schedule located
on the real property covered by such leases (the "Non-Operated Royalty
Interests").
(g) MISCELLANEOUS ASSETS. All of the right, title and interest of
Sellers in and to the other tangible assets and properties that are primarily
used in the business of the Natural Gas Exploration and Production division of
Sellers (other than the Excluded Assets as defined in Section 1.3) including,
but not limited to, the following: (i) the district offices located in
Pleasantville, Pennsylvania and Belpre, Ohio and all tangible personal property
located therein, including furniture, computers and related software, technical
data (including seismic, geological and geophysical data) and office machines;
(ii) the field offices, equipment yards, garages and shops listed and described
in Schedule 1.2(g)(ii) of the Disclosure Schedule and all tangible personal
property located therein, including the property listed in Schedule 1.2(g)(ii)
of the Disclosure Schedule; (iii) the licensed and unlicensed vehicles,
trailers and tractors owned or leased by Sellers listed in Schedule 1.2(g)(iii)
of the Disclosure Schedule; and (iv) all new and used oilfield supplies and
equipment carried in inventory, including, but not limited to, casing, tubing,
rods, line pipe, pumping units, tanks, separators, meters, valves, wellheads,
gas engines, frac tanks, test tanks, frac valves, gas compressors and other
inventory items shown on the Inventory List as of December 31, 1994, furnished
to Buyer by Sellers, except for items removed from inventory since that date
(the "Miscellaneous Assets").
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<PAGE> 7
(h) RECORDS. All files, records or data owned by or in the
possession of either of the Sellers primarily relating to or necessary for the
operation of the Assets, including all land, lease, division and transfer
order, prospect and title files and records, geological and production records,
engineering records and data, logs, core data, pressure data and other related
data and records, other than tax returns, related work papers and other related
documents and records, (the "Records"), and copies of all files, records and
data owned by or in the possession of either of the Sellers primarily relating
to the Partnerships and necessary for the operation of the Assets, including
copies of Partnership tax returns, related work papers and other related
documents and records to the extent necessary to permit Buyer to prepare
Partnership tax returns following the Closing.
1.3 EXCLUDED ASSETS. Notwithstanding anything to the contrary in
Section 1.2, Sellers or the Selling Drilling Funds will retain and not
transfer, and Buyer will not purchase or acquire, the following assets
(collectively, the "Excluded Assets"):
(a) any surface properties other than (i) those appurtenant to the
district offices, field offices, equipment yards, garages and shops referred to
in Section 1.2(g) hereof and (ii) the easements, rights-of-way, roads and
licenses necessary for the operation and maintenance of the Wells and the
production of oil and gas therefrom and the operation and maintenance of the
Gas Gathering Systems;
(b) any properties or assets excluded from the sale pursuant to
the provisions of Section 5.1 hereof for so long as the same shall be so
excluded;
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<PAGE> 8
(c) any properties or assets sold or otherwise disposed of by
Sellers or the Selling Drilling Funds prior to the Closing Date to the extent
permitted by Section 4.1(a) hereof;
(d) any of the interests of Sellers in the natural gas gathering
system commonly referred to as the "Bonanza Pipeline" located in Ohio and
operated by MB Operating Co. or in the oil and gas wells operated by MB
Operating Co.;
(e) the partnership interests of Sellers in the Partnerships as
shown in Annex A to the Disclosure Schedule, the interests of Sellers in the
oil and gas wells associated with the Partnerships as described in Section
1.3(e) of the Disclosure Schedule, and the leasehold interests and fee oil and
gas interests of Sellers associated with the Partnerships as described in
Section 1.3(e) of the Disclosure Schedule;
(f) the working or other interests of Sellers in the oil and gas
wells listed in Schedule 1.3(f) of the Disclosure Schedule (the "Section 29
Wells") which qualify for tax credits under Section 29 of the Internal Revenue
Code, as amended (the "Code"), and the oil and gas leases embracing lands on
which the Section 29 Wells are located (the "Section 29 Leases"), and the fee
oil and gas interests associated with the Section 29 Wells that are described
in Schedule 1.3(f) of the Disclosure Schedule; and
(g) the assets, if any, described in Schedule 1.3(g) of the
Disclosure Schedule.
1.4 ASSIGNMENT OF CERTAIN INTERESTS IN CERTAIN EXCLUDED ASSETS.
(a) SECTION 29 WELLS. On the Closing Date, Sellers shall,
pursuant to one or more agreements or instruments in form and substance
mutually satisfactory to Sellers
-8-
<PAGE> 9
and Buyer, (i) convey to Buyer a production payment in each of the Section 29
Wells consisting of a right entitling Buyer to receive an amount equal to
99% of the net proceeds of production attributable to the interests of Sellers
in the Section 29 Wells during the period from the Closing Date through
December 31, 2002 (the "Production Payment") and (ii) grant to Buyer an option
to purchase on April 1, 2003 all the right, title and interest of Sellers in
the Section 29 Wells and the Section 29 Leases for a price equal to the then
fair market value of the Section 29 Wells and Section 29 Leases as determined
by mutual agreement of the parties, or if they are unable to agree, as
determined by an independent third party jointly selected by Sellers and Buyer.
(b) PARTNERSHIPS. On the Closing Date, (i) each of the Sellers
shall assign to Buyer the right to receive an amount equal to 99% of the
profits and distributions (net of losses before depreciation, depletion,
amortization and other non-cash expenses) allocable to such Seller when paid to
such Seller as general partner or managing general partner of each of the
Drilling Partnerships and the Production Partnerships of which such Seller is a
general partner or managing general partner (the "Partnership Revenue
Interests") during the period from the Closing Date through the date of
termination of the relevant Partnership or (in the case of the Drilling
Partnerships) if earlier, December 31, 2005 in the case of Quaker State 1990-1
Drilling Fund, L.P. December 31, 2007 in the case of Quaker State 1992-1
Drilling Fund, L.P. or December 31, 2009 in the case of Quaker State 1994-1
Drilling Fund, L.P. and (ii) Buyer shall agree to pay to each Seller an amount
equal to 99% of the losses before depreciation, depletion, amortization and
other non-cash expenses (net of profits and
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<PAGE> 10
distributions) allocable to such Seller plus 99% of the other liabilities and
obligations incurred by such Seller (when payable by such Seller) as general
partner or managing general partner of such Partnership, in each case pursuant
to an agreement in form and substance mutually satisfactory to Sellers and
Buyer. On the Closing Date, Sellers shall grant (or cause to be
granted) to Buyer an option, pursuant to an agreement in form and substance
mutually satisfactory to Sellers and Buyer, to purchase all the right, title
and interest of the Drilling Partnerships and Sellers in the oil and gas wells
in which the Drilling Partnerships have a working interest, exercisable by
written notice of exercise during the six month period following the
termination of the Partnership Revenue Interests, at a price equal to the then
fair market value of the properties as determined by mutual agreement of the
parties, or if they are unable to agree, as determined by an independent third
party jointly selected by Sellers and Buyer.
(c) CERTAIN OTHER INTERESTS OF SELLER. On the Closing Date,
Sellers shall, pursuant to one or more agreements or instruments in form and
substance mutually satisfactory to Sellers and Buyer, convey to Buyer a
production payment in each of the royalty, overriding royalty or working
interests of Sellers described in Section 1.4(c) of the Disclosure Schedule,
consisting of a right entitling Buyer to receive an amount equal to 99% of the
net proceeds of production attributable to such interests during the period
from the Closing Date until termination of the Partnership Revenue Interest for
the Partnership to which such interest of Sellers relates.
1.5 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
initially allocated among the Assets, the Production Payment and the
Partnership Revenue
-10-
<PAGE> 11
Interests as set forth in Schedule 1.5 of the Disclosure Schedule. Such
allocations have been determined by negotiations between the parties on the
basis of the respective fair market values of the assets and properties
comprising the Assets, the Production Payment and the Partnership Revenue
Interests and otherwise in accordance with Section 1060 of the Code as of
January 1, 1995. Such allocations shall be modified after the Closing to
reflect all adjustments to the Purchase Price made pursuant to Section 5.1,
5.4, 5.5 or 7.2. Sellers and Buyer shall, and shall cause their respective
affiliates to, (a) file their federal, state and local income tax returns in a
manner consistent with the allocation of the Purchase Price under this Section
1.5, and (b) not take any position for tax purposes in a manner inconsistent
with such allocation.
1.6 ASSUMPTION OF CERTAIN CONTRACTUAL OBLIGATIONS BY BUYER.
(a) Subject to the terms and conditions set forth herein and
subject to the indemnity provided for in clauses (i) and (ii) of Section
8.1(a), on the Closing Date Buyer shall assume and agree to pay, perform and
discharge the following liabilities and obligations relating to the Assets
(collectively, the "Assumed Obligations"):
(i) any and all performance obligations not
requiring the payment of money existing on,
or arising or accruing after, the Closing
Date relating to the Assets, including such
obligations under or with respect to the
Leases, the Section 29 Leases, the Operating
Agreements, the Undeveloped Leases and the
leases, agreements and contracts listed or
described in Schedule 1.2(b), 1.2(e), 1.2(f)
and 2.23 of the Disclosure Schedule; and
(ii) any and all liabilities and obligations
relating to the Assets that arise or accrue after the
Closing Date.
(b) Buyer shall assume the Assumed Obligations by executing and
delivering to Sellers at the Closing an assumption agreement in form and
substance mutually
-11-
<PAGE> 12
satisfactory to Sellers and Buyer (the "Assumption Agreement"). The
Assumption Agreement will also contain provisions mutually satisfactory to
Sellers and Buyer with respect to, among other things, (i) Buyer's
administration of the suspense account funds referred to in Sections 2.18 and
7.4 hereof (including indemnification of Sellers with respect to any
misapplication of such funds) and (ii) Buyer's indemnification obligation set
forth in the last sentence of Section 5.6.
1.7 NON-ASSUMPTION OF SELLERS' LIABILITIES. Except for the
assumption by Buyer of the Assumed Obligations as provided in Section 1.6,
Buyer shall not assume or be responsible for any liabilities or obligations of
Sellers relating to or arising out of the operation or ownership of the Assets
by Sellers.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant to Buyer (subject to Section
4.2(e) and the second sentence of Section 5.4(a)) as of the date hereof and (as
modified pursuant to Section 4.2(e) and by the transactions permitted by this
Agreement) as of the Closing Date, as follows:
2.1 CORPORATE ORGANIZATION AND EXISTENCE. Each of the Sellers is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with the corporate power and authority to own
its properties and carry on its business as now being conducted.
2.2 AUTHORITY OF SELLERS. Each of the Sellers has the authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. All action on
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<PAGE> 13
the part of the directors and shareholders of each of the Sellers necessary to
authorize the execution, delivery and consummation of this Agreement has been
duly and validly taken. This Agreement has been duly executed and delivered by
each of the Sellers and constitutes the valid and binding obligation of each of
the Sellers, enforceable against each of the Sellers in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency
and other laws in effect from time to time relating to or affecting the
enforcement of creditors' rights generally and general principles of equity.
2.3 NO VIOLATION OR BREACH. Except as set forth in Schedule 2.3
of the Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated herein by
either of the Sellers will:
(a) conflict with, result in a violation of, or require the
consent of any person under, any of the terms, conditions or provisions of its
certificate of incorporation or bylaws;
(b) to the knowledge of Sellers, except as set forth in Schedule
2.4 of the Disclosure Schedule and except for compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), conflict with or result in a breach, default or violation of, or require
any filing, consent, authorization or approval under, any law, statute,
ordinance, decree, order, judgment, rule, regulation or governmental permit,
certificate or license to which either of the Sellers or any of the Assets is
subject; or
-13-
<PAGE> 14
(c) result in the creation of any material lien, charge or other
encumbrance upon any of the Assets, other than any lien, charge or other
encumbrance created by or through Buyer.
2.4 CONSENTS AND PREFERENTIAL PURCHASE RIGHTS. Except as set
forth in Schedule 2.4 of the Disclosure Schedule, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated herein by either of the Sellers will (i) entitle any person (other
than Buyer) to exercise any preferential purchase right, option to purchase,
first refusal or similar right with respect to any of the Assets or Section 29
Wells, or (ii) require the consent, authorization or approval of any third
party under any material contract, agreement, lease, easement, license or
permit listed in any Section of the Disclosure Schedule.
2.5 NO DEFAULT. Except as set forth in Schedule 2.5 of the
Disclosure Schedule, neither of the Sellers is in material violation of or
material default under, and no condition exists that with the giving of notice
or lapse of time or both would constitute such a material violation of or
material default under, (i) any order, judgment or decree of any court,
governmental agency or governmental authority relating to any of the Assets or
Section 29 Wells by which either of the Sellers or any Partnership is bound or
to which any of the Assets or Section 29 Wells is subject or (ii) any
governmental permit, order or license relating to any of the Assets or Section
29 Wells or the operation thereof or the production, collection, storage or
transportation of oil, gas and other hydrocarbons therefrom, including, but not
limited to, drilling permits, federal and state water discharge permits,
plugging permits or orders and brine hauling permits.
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<PAGE> 15
2.6 LITIGATION. Except as set forth in Schedule 2.6 of the
Disclosure Schedule, no claim, suit, action, arbitration proceeding or other
proceeding is pending or, to the best knowledge of Sellers, threatened against
either Seller in connection with the Assets or Section 29 Wells or relating to
the transactions contemplated hereby before any court, governmental agency or
other governmental authority that would reasonably be expected to (i) result in
the material impairment or loss of title of either of the Sellers to any of the
Assets or the Section 29 Wells, (ii) result in the material impairment or loss
of the value of the interests of either of the Sellers in any of the Assets or
the Section 29 Wells, (iii) materially hinder or impede the development of any
of the Leases or the Undeveloped Acreage or the operation of any of the Wells
or the Section 29 Wells or (iv) result in the removal of either of the Sellers
as operator under any of the Operating Agreements or in the termination or
cancellation of any of such agreements.
2.7 ACCURACY OF CERTAIN HISTORICAL FINANCIAL INFORMATION. To the
knowledge of Sellers, the underlying historical financial data consisting of
Sellers' computer file records of revenues and direct operating expenses
attributable to the Wells and Section 29 Wells for the year ended December 31,
1994 and for the three month period ended March 31, 1995 (as more particularly
set forth or described in Schedule 2.7 of the Disclosure Schedule) furnished to
Ernst & Young LLP by Sellers in connection with the preparation of the
Statements of Revenues and Direct Operating Expenses of the Assets for the
years ended December 31, 1994 and 1993 and for the three months ended March 31,
1995 and March 31, 1994 accurately reflected, in accordance with the generally
accepted accounting principles consistently applied throughout the periods
-15-
<PAGE> 16
involved, the revenues derived from, and the direct operating expenses incurred
in, the operation of the Assets for such periods. Since March 31, 1995 there
has not been any material adverse change in the revenues derived from, or
direct operating expenses incurred in, the operation of the Assets, except for
any change resulting from normal production declines, seasonal market
conditions and sales curtailments due to market prices.
2.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
2.8 of the Disclosure Schedule, since December 31, 1994 there has not been:
(a) any loss or damage (whether or not covered by insurance) to
any of the Wells, Section 29 Wells, Gas Gathering Systems or material
Miscellaneous Assets which materially and adversely affects the condition,
operation or value thereof;
(b) any sale, lease or disposition of any material Assets (except
oil, gas and inventory items) not approved in advance by Buyer; and
(c) any sale or disposition of any items of oilfield equipment or
supplies inventory except those items withdrawn from inventory for use in
drilling, equipping and completing new oil and gas wells on the Leases, the
Section 29 Leases or the Undeveloped Acreage or in re-working or re-equipping
the Wells or the Section 29 Wells, other than in the ordinary course of
business.
2.9 OIL AND GAS WELLS.
(a) Schedules 1.2(a)(i) and 1.3(e) of the Disclosure Schedule
accurately set forth information regarding each of the Wells and the Section 29
Wells, respectively, the name (if any) and location of each such well, the
applicable identification and permit
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number, the percentage of the working interest owned by Sellers and/or the
Partnerships therein (to the extent of the interest of Sellers in the
Partnership) and the net revenue interest of Sellers and/or the Partnerships
therein (to the extent of the interest of Sellers in the Partnerships).
Sellers and the Partnerships are receiving on a current basis the proceeds of
production from each of the Wells and the Section 29 Wells in an amount not
less than the respective net revenue interests of Sellers and the Partnerships
therein, and are currently paying costs and expenses relating to each of the
Wells and the Section 29 Wells not in excess of the respective working
interests of Sellers and the Partnerships therein.
(b) Except as set forth in Schedule 2.9 of the Disclosure
Schedule, the Wells and the Section 29 Wells have been drilled, completed and,
to the knowledge of Sellers, bottomed within the boundaries specified in any
applicable permit or within the limits otherwise permitted by contract or law
and on the real property covered by, and substantially in accordance with the
provisions of, the Leases or the Section 29 Leases applicable thereto. All the
Wells and the Section 29 Wells have been drilled, completed and operated in
substantial compliance with all applicable laws, rules, regulations, permits,
orders, judgments and decrees of any court or governmental or regulatory
authority, all applicable laws and permitting procedures for the drilling or
operation of oil and gas wells and the spacing, completion and bottoming of
wells and the disposal of water therefrom.
(c) Except as disclosed in Schedule 2.9 of the Disclosure
Schedule, as of the date hereof none of the Wells or the Section 29 Wells has
been plugged or abandoned.
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(d) All claims of which Sellers have received written notice prior
to the date hereof relating to material damages to the surface estate caused by
operations on the real property covered by the Leases or the Section 29 Leases
have been or will be resolved and any required payments in full settlement
thereof have been or will have been accepted by the appropriate owner of the
surface estate.
(e) Sellers and the Partnerships hold all governmental licenses
and permits necessary to operate the Wells and the Section 29 Wells as
currently operated and to sell production and dispose of water therefrom
(except for those licenses and permits which would not result in material
liabilities or have a material adverse effect on the value of the Wells or the
Section 29 Wells if not obtained or maintained), all such licenses and permits
are in full force and effect and no material violations have occurred or exist
in respect of any such license or permit. No proceeding by any governmental
authority is pending or, to the knowledge of Sellers, threatened that would
reasonably be expected to result in the revocation or limitation of any such
license or permit.
(f) Quaker State or QSE&P is the operator of all the Wells and the
Section 29 Wells, except those identified in Schedule 2.9(f) of the Disclosure
Schedule.
2.10 DEVELOPED LEASES.
(a) Schedules 1.2(a)(ii) and 1.3(e) of the Disclosure Schedule
accurately set forth the following information regarding each of the Leases and
the Section 29 Leases: the lease number, the name of the lessor, the lease
date, approximate number of acres covered by the lease, the name(s) (if any)
and identification number of the Well(s) or
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Section 29 Well(s) thereon, certain recording information and the location
by county of the lands covered thereby.
(b) Each of the Leases and Section 29 Leases is valid, binding and
in full force and effect against the Seller party thereto and, to Sellers'
knowledge, each other party thereto, and no material default exists thereunder
in the payment by Sellers or any Partnership of rentals, royalties or other
amounts due thereunder or in the performance of any other obligation of either
of the Sellers or any of the Partnerships thereunder that would entitle the
lessor to cancel or terminate such Lease or Section 29 Lease.
(c) Each of the Leases and Section 29 Leases is a valid and
subsisting encumbrance upon or an estate in the real property covered thereby
prior in right to any other encumbrance or lien on such real property affecting
the oil and gas underlying such real property, except for encumbrances and
liens which would not materially adversely affect the use thereof as currently
operated, and there is no other lease, severance of mineral interest or any
other condition in the state of title to the underlying fee interest in the
real property covered by the Leases and the Section 29 Leases which would
reasonably be expected to materially restrict, interfere with or limit in any
way the oil and gas operations contemplated by the Leases and the Section 29
Leases as such operations are currently conducted.
(d) No party to any Lease or Section 29 Lease or any successor to
the interest of such party has filed or, to the knowledge of Sellers,
threatened to file any
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action to terminate, cancel, rescind or procure judicial reformation of any
Lease or Section 29 Lease.
2.11 GAS GATHERING SYSTEMS.
(a) Except as set forth in Schedule 2.11 of the Disclosure
Schedule, Sellers are the sole owners of the Gas Gathering Systems and have the
right to operate and maintain such systems pursuant to easements,
rights-of-way, licenses, permits and other rights necessary for the operation
and maintenance of the Gas Gathering Systems. Except as set forth in Schedule
2.11 of the Disclosure Schedule, none of such easements, rights-of-way, permits
or other rights would terminate or cease by reason of the termination or
expiration of any of the Leases or Section 29 Leases.
(b) Except as set forth in Schedule 2.11 of the Disclosure
Schedule, neither of the Sellers has received prior to the date hereof any
written notices contesting the placement of the Gas Gathering Systems or the
validity of any of such easements, rights-of-way or licenses.
(c) Neither of the Sellers is subject to, or each is exempt from,
regulation as a public utility under the laws of the states in which the Gas
Gathering Systems are located in connection with the operation of the Gas
Gathering Systems as presently operated and the sale and transportation of gas
to purchasers through the Gas Gathering Systems.
(d) Each of the gas transportation, gas sales, meter site,
compressor site and other agreements relating to the Gas Gathering Systems is
in full force and effect against the Seller party thereto and, to the knowledge
of Sellers, each other party
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thereto, and no material default exists thereunder in the payment by Sellers of
any amounts due thereunder or in the performance of any other material
obligations of either of the Sellers or, to Sellers' knowledge, any other
party thereto.
2.12 OPERATING AGREEMENTS. Quaker State or QSE&P is the operator
of certain oil and gas wells under the Operating Agreements listed and
described in Schedule 1.2(c) of the Disclosure Schedule, which description
includes the respective dates thereof, the names of the parties thereto and the
wells to which the respective Operating Agreements apply. Sellers have made
available to Buyer true and correct copies of all the Operating Agreements and
all amendments and supplements thereto. The Operating Agreements are valid,
binding and in full force and effect against the Seller party thereto and, to
the knowledge of Sellers, each other party thereto, and no material default
exists thereunder in the payment of any amounts payable by Quaker State or
QSE&P or in the performance of any other material obligation of Quaker State or
QSE&P thereunder. The operating fees and costs charged to the owners of the
working interests under the Operating Agreements have not exceeded the amounts
authorized or permitted by the Operating Agreements. There are no material
outstanding calls or payments under authorities for expenditure which are due
from either of the Sellers or which either of the Sellers has committed to make
under any of the Operating Agreements which have not been made.
2.13 PARTNERSHIPS.
(a) Annex A to the Disclosure Schedule sets forth a complete list
of all limited partnerships and general partnerships which own interests in any
of the Wells or the
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Section 29 Wells and of which either or both of Sellers is
general partner or a managing general partner. Quaker State and/or QSE&P own
partnership interests in the Partnerships entitling Sellers to the share of
profits, losses and distributions of each Partnership in the percentage set
forth opposite the name of such Partnership on such Annex A. Each of the
Partnerships has been duly organized and is validly existing under the laws of
the jurisdiction of its organization and has full power and authority to own
and hold its properties and to carry on its business as presently conducted.
Sellers have previously made available to Buyer complete and correct copies of
the partnership agreements and limited partnership agreements of the respective
Partnerships, none of which has been amended or restated since the date hereof.
(b) Annex A to the Disclosure Schedule accurately sets forth the
percentage of the working interest and net revenue interest of each Partnership
in the Wells and Section 29 Wells set forth below the name of such Partnership
therein.
2.14 UNDEVELOPED ACREAGE. Sellers own the Undeveloped Leases and
fee mineral interests listed and described in Schedule 1.2(d) of the Disclosure
Schedule, free and clear of any mortgages, liens or other similar encumbrances
created by, through or under Sellers, other than those arising by operation of
law. All of the Undeveloped Leases are valid, binding and in full force and
effect against the Seller party thereto and, to the knowledge of Sellers, each
other party thereto, and Sellers have made all payments, including rentals and
delay rentals, due in respect of the Undeveloped Leases. No party to any
Undeveloped Lease or any successor to the interest of such party has filed, or
to the knowledge of Sellers, threatened to file any
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action to terminate, cancel, rescind or procure judicial reformation of any
Undeveloped Lease.
2.15 NON-OPERATED ROYALTY INTERESTS. Schedule 1.2(f) of the
Disclosure Schedule accurately sets forth the following information regarding
each of the oil and gas wells operated by third parties in which Sellers have a
royalty interest or overriding royalty interest: the name (if any) and location
of each such well, the name of the operator and the percentage of the royalty
or overriding royalty interest owned by Sellers therein and, with respect to
the oil and gas lease(s) covering the real property on which such Well is
located, the name of the lessor, the lease date and certain recording
information. Each of such leases is valid, binding and in full force and
effect against the Seller party thereto and, to the knowledge of Sellers, each
other party thereto, and no material default exists thereunder in the payment
of any royalties or overriding royalties due to either of the Sellers
thereunder.
2.16 MISCELLANEOUS ASSETS. Sellers own all the Miscellaneous
Assets (other than those which are leased by Sellers), free and clear of any
mortgages, security interests or similar liens or encumbrances granted by
Sellers.
2.17 CONDITION OF ASSETS. The Wells, the Section 29 Wells, the Gas
Gathering Systems and the Miscellaneous Assets are in reasonably good operating
condition and in a state of reasonable maintenance and repair in accordance
with reasonable industry practice.
2.18 TAXES, EXPENSES AND ROYALTIES. All federal, state or local
production, severance, gross receipts, excise and similar taxes and assessments
based on or
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measured by the ownership of the Wells or the Section 29 Wells or
the production of hydrocarbons or the receipt of proceeds therefrom for all
periods ending on or before the Closing Date have been or will be paid by
Sellers or the Selling Drilling Funds. All costs and expenses incurred by
Sellers or the Selling Drilling Funds on or before the Closing Date in
connection with the ownership and operation of the Wells and the Section 29
Wells and all amounts payable by Sellers or the Selling Drilling Funds to the
holders of royalty, overriding royalty, working and other interests with
respect to the sale of hydrocarbons produced from the Wells and the Section 29
Wells and sold on or before the Closing Date have been or will be paid by
Sellers or the Selling Drilling Funds, except for amounts being held in
suspense accounts as set forth in Schedule 2.18 of the Disclosure Schedule.
2.19 CERTAIN MATTERS RELATING TO PRODUCTION.
(a) Neither of the Sellers nor any of the Partnerships is
obligated, by virtue of a "take or pay" or other prepayment arrangement, a gas
balancing agreement or any similar provision in any contract for the sale of
production, to deliver at some future time any material amount of production
from any of the Wells without receiving full payment therefor at or after the
time of delivery.
(b) All net proceeds from the sale of production attributable to
the interests of the Sellers and the Partnerships in the Wells and the Section
29 Wells are currently being paid in full to Sellers or the Partnerships and no
material portion of such proceeds is currently being suspended or withheld by
the purchaser thereof.
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2.20 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 2.20
of the Disclosure Schedule:
(a) No underground petroleum or chemical storage tanks have been
installed by Sellers which remain on any property owned or leased by either of
the Sellers that is included in the Assets. No property owned or leased by
either of the Sellers that is included in the Assets has been used by Sellers
as a landfill or a waste disposal site in material violation of any
environmental law applicable to the Assets.
(b) Neither of the Sellers is in material violation of, or subject
to any material liability for the violation by Sellers of, any environmental
law applicable to the Assets. For purposes hereof, "environmental law" means
any federal, state or local law, ordinance, rule, regulation, license, permit,
order, judgment, decree or injunction relating to and regulating (i) the
protection, preservation or restoration of the environment (including air,
water, vapor, surface water, ground water, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource) or (ii)
the use, storage, recycling, treatment, generation, transportation, processing,
handling, production, release or disposal of any pollutant, hazardous
substance, toxic substance or hazardous waste.
(c) Neither Seller is subject to any material liability or
obligation relating to the release by Sellers of hazardous substances or wastes
at, in or under any property owned or leased by either of the Sellers which is
included in the Assets, except for the production and temporary storage of oil
produced from the Wells and the Section 29 Wells in substantial compliance with
all applicable environmental laws. For purposes
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hereof, "hazardous substances" and "hazardous wastes" are materials defined as
"hazardous substances," or "hazardous wastes" in (i) the Comprehensive
Environmental Response, Compensation and Liability act of 1980 as amended
by the Superfund Amendments and Reauthorization Act of 1986, and any amendments
thereto and regulations thereunder, (ii) the Resource Conservation and Recovery
Act of 1976 as amended by the Hazardous and Solid Waste Amendments of 1984, and
any amendments thereto and regulations thereunder, and (iii) to the extent not
inconsistent with the definitions contained in the acts and regulations listed
in clauses (i) and (ii) above, any other environmental law.
(d) Neither of the Sellers has received prior to the date hereof
any written or oral notice from any governmental authority or any written
notice from any private party of any material violation of any environmental
law applicable to the Assets or of any demand, request for information,
citation, summons or complaint relating to any material violation thereof
(other than violations that have been or will have been cured prior to the
Closing Date).
2.21 REAL ESTATE OWNED AND LEASED. The real estate and
improvements thereon owned or leased by Sellers and included in the
Miscellaneous Assets conform in all material respects with all applicable laws,
ordinances and regulations, including all building and zoning laws, the failure
to comply with which would have a material adverse effect on the value or use
of such property. Schedule 2.21 of the Disclosure Schedule contains a complete
list and brief description (including the use to which such property is being
employed) of all material leases, subleases or other agreements
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under which either of the Sellers is lessee or sublessee of real estate
included in the Miscellaneous Assets, complete and correct copies of which have
been made available to Buyer. Each of such leases, subleases and other
agreements is valid, binding and in full force and effect against the Seller
party thereto and to the knowledge of Sellers, each other party thereto, and
neither of Sellers is in default in the payment or performance of any of its
material obligations thereunder. Sellers have good and marketable title to the
real estate and improvements thereon included in the Miscellaneous Assets
(other than the real estate and improvements leased by Sellers), free and clear
of any mortgages, liens or similar encumbrances, except liens for real estate
taxes and assessments not yet due and payable, and other liens or encumbrances
arising by operation of law.
2.22 TECHNICAL DATA. Sellers have sufficient ownership or
contractual rights to use the seismic, geological, geophysical and other
technical data included in the Miscellaneous Assets.
2.23 CONTRACTS. Schedule 2.23 of the Disclosure Schedule lists
each of the material gas transportation and gas sales agreements related to the
Assets or Section 29 Wells and each material lease or sublease relating to
vehicles or equipment included in the Miscellaneous Assets.
2.24 UPDATED INVENTORY LIST. The updated Inventory List to be
delivered to Buyer by Sellers at the Closing shall accurately reflect all
withdrawals from and additions to the inventory of oilfield equipment and
supplies since December 31, 1994 through the date that is 15 business days
prior to the Closing Date and with respect to
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additions shall show the cost thereof and with respect to withdrawals shall
identify the wells on which such inventory was used.
2.25 ACCURACY AS OF CLOSING DATE. Subject to Section 4.2(e), the
representations and warranties made hereinabove in this Article II (as modified
by transactions permitted by this Agreement and by Schedule 5.4 of the
Disclosure Schedule) will be true and correct in all material respects on the
Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers, as of the date hereof
and as of the Closing Date, as follows:
3.1 CORPORATE ORGANIZATION AND EXISTENCE. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Ohio, with the corporate power and authority to own its properties and
carry on its business as now being conducted.
3.2 AUTHORITY OF BUYER. Buyer has the authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the performance of the
transactions contemplated hereby by Buyer have been duly authorized by its
Board of Directors. No other corporate action, approval or proceeding on the
part of Buyer or its shareholders is necessary to authorize the execution,
delivery and consummation of this Agreement. This
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Agreement has been duly executed and delivered by Buyer and constitutes the
valid and binding obligation of Buyer, enforceable against it in accordance
with the terms hereof, except as such enforceability may be limited by
bankruptcy, insolvency and similar laws in effect from time to time relating to
or affecting the enforcement of creditors' rights generally and general
principles of equity.
3.3 NO VIOLATION OR DEFAULT. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (a) violate any provision or constitute a default (whether with notice or
lapse of time or both) under the articles of incorporation or code of
regulations of Buyer, any law or regulation to which Buyer or any of its
properties or assets is subject or any contract, agreement, instrument, order,
arbitration award, judgment or decree to which Buyer is a party or by which it
is bound, or (b) except with respect to the HSR Act, require Buyer to obtain
any waiver, consent, approval or authorization of, or to make any filing with,
any governmental department, commission, agency or other governmental or
regulatory authority.
3.4 LITIGATION. No litigation, governmental investigation or
other proceeding is pending or, to Buyer's knowledge, threatened by, against or
affecting Buyer that might delay, prevent or hinder the consummation of the
transactions contemplated hereby.
3.5 FUNDS AVAILABLE. Buyer has, or will have on or before the
Closing Date, sufficient cash, available lines of credit or other sources of
immediately available funds to enable it to make payment of the Purchase Price
at the Closing. Buyer has delivered to Sellers a binding commitment letter
from Bank One, Texas and NBD Bank (the
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"Lenders") pursuant to which the Lenders have committed to make available to
Buyer all financing required for Buyer to consummate the transaction
contemplated by this Agreement.
3.6 ACCURACY AS OF CLOSING DATE. The representations and
warranties made hereinabove in this Article III will be true and correct on and
as of the Closing Date, with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date.
ARTICLE IV
ADDITIONAL COVENANTS OF SELLERS AND BUYER
4.1 COVENANTS OF SELLERS. Sellers covenant and agree with Buyer
as follows:
(a) CERTAIN CHANGES. Except as may be expressly permitted by this
Agreement, from the date hereof until the Closing, Sellers will not, without
the prior written consent of Buyer (which consent shall not be unreasonably
withheld):
(i) make any material change in the conduct of the
business or operations relating to the Assets that
would reasonably be expected to have a material
adverse effect on the value of the Assets;
(ii) voluntarily terminate or amend in any material
respect any of the Leases, the Section 29 Leases or
the Operating Agreements (except for the substitution
of Buyer as operator thereunder);
(iii) sell, lease or otherwise dispose of any of the Assets;
(iv) make or enter into any commitments or agreements
relating to the operation of the Wells or the Section
29 Wells or the sale, purchase, processing or
transportation of production from or attributable to
the Wells or the Section 29 Wells after the Closing;
(v) mortgage, pledge or similarly encumber any of the
Assets;
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(vi) execute any material authorities for expenditure or
consent to the commencement of any new operations for
the drilling or completing of any new well on the
Leases, the Section 29 Leases or the Undeveloped
Acreage or to the redrilling, re-working,
re-equipping or recompleting of any Well on the
Leases;
(vii) make or enter into any agreement or contract
requiring an expenditure (other than arising as a
result of an emergency) relating to the Producing
Properties, the Section 29 Wells or Gas Gathering
Systems in excess of $5,000 in any one case; or
(viii) commit themselves to do any of the foregoing;
provided, however, that nothing contained in this Section 4.1(a) or elsewhere
in this Agreement shall limit the rights of Sellers and the Selling Drilling
Funds to produce, consume and sell production from the Wells and the Section 29
Wells, or otherwise operate or conduct their business, in the ordinary course
of business.
(b) CERTAIN COVENANTS WITH RESPECT TO THE ASSETS. Except as may
otherwise be expressly provided herein, Sellers will, from the date hereof to
the Closing (the "Preclosing Period"), unless otherwise consented to in writing
by Buyer (which consent will not be unreasonably withheld):
(i) promptly notify Buyer of the receipt during the
Preclosing Period by Sellers of any written notice or
written claim or written threat of notice or claim
which becomes known to Sellers relating to any
material default or breach under, or relating to the
termination or cancellation or written threat of
termination or cancellation of, any of the Leases,
Section 29 Leases or Operating Agreements;
(ii) promptly notify the Buyer of the occurrence during
the Preclosing Period of any material loss or damage
to any of the Wells, the Section 29 Wells, the Gas
Gathering Systems or the Miscellaneous Assets that
becomes known to Sellers and that would cost more
than $5,000 in any one case to repair or restore;
(iii) cause to be paid all rentals, shut-in royalties,
minimum royalties and other payments that are
necessary to maintain in force Sellers' rights in and
to the Leases and the Section 29 Leases on which the
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Wells and Section 29 Wells are located, and pay
timely all material costs and expenses incurred by it
in connection with such wells and leases; and
(iv) use their reasonable efforts to maintain and operate
the Wells and the Section 29 Wells substantially in
accordance with all applicable legal requirements and
the contracts relating thereto, and in substantially
the same manner that Sellers heretofore have operated
such properties.
(c) ACCESS. Sellers will afford to Buyer and its authorized
representatives, at Buyer's sole expense, risk and cost and upon reasonable
notice, reasonable access from the date hereof until the Closing Date, during
normal business hours, to the personnel, properties, books and records of
Sellers which are related primarily to the Assets to the extent that such
access and disclosure would not unreasonably interfere with the normal
operation of the business of Sellers or violate the terms of any agreement by
which either Seller is bound; provided, however, that the confidentiality of
any data or information so acquired shall be maintained by Buyer and its
representatives in accordance with the Confidentiality Agreement between Quaker
State and Buyer dated February 8, 1995 (the "Confidentiality Agreement"),
except that the Statements of Revenues and Direct Operating Expenses of the
Assets for the years ended December 31, 1993 and 1994 and for the three months
ended March 31, 1994 and 1995 prepared by Ernst & Young have been included in
regulatory filings under the securities laws with the consent of Sellers who
have approved the form and substance thereof. Buyer shall have the right to
physically inspect the Assets at Buyer's sole expense, risk and cost and upon
reasonable notice, from the date hereof until the Closing Date during normal
business hours to the extent such inspection would not
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unreasonably interfere with the normal operation of the business of Sellers or
violate the terms of any agreement by which neither Seller is bound. Such
right shall include the right of Buyer through an environmental consultant of
its choice to conduct an environmental investigation of the Assets, including
such limited subsurface investigations and sampling as reasonably deemed
necessary by Buyer or such consultant in order to fully evaluate the
environmental condition of the Assets. Any report prepared by Buyer's
consultant shall be treated by Buyer and its representatives (including such
consultant) as confidential information in accordance with the terms and
provisions of the Confidentiality Agreement, and shall be provided to Sellers
at their request. Sellers agree that copies of all of the Leases, Section 29
Leases and the Undeveloped Leases, title data and reports relating thereto,
including all title opinions which have been prepared covering all or any
portion of the Leases, the Section 29 Leases, Undeveloped Leases, Gas Gathering
Systems or owned real estate constituting a part of the Assets, shall be made
available for Buyer's inspection at Sellers' offices, provided that Buyer and
its representatives shall treat all such information as confidential
information in accordance with the terms and provisions of the Confidentiality
Agreement.
(d) PUBLIC ANNOUNCEMENTS. Sellers shall not issue any public
announcement or statement with respect to the transactions contemplated hereby
except upon the consent of Buyer or upon the advice of Sellers' counsel that
such announcement or statement is required by law, regulation or rule of the
Securities and Exchange
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Commission or any stock exchange. Sellers shall make available to Buyer the
text of any public announcement prior to the release of any such announcement.
(e) NOTIFICATION OF CLAIMS. Sellers shall promptly notify Buyer
of any of the following of which Sellers receive written notice after the date
hereof and prior to the Closing Date: (i) any proceeding or inquiry initiated
or made against or to Sellers by any governmental authority, nongovernmental
entity or person with respect to any hazardous substances or hazardous wastes
present on, or any environmental condition relating to, the Assets that is
alleged to violate applicable environmental law; and (ii) any suit, action or
other proceeding against Sellers before any court or any governmental authority
arising or threatened in writing prior to the Closing that relates to the
Assets and that would reasonably be expected to result in the impairment or
loss of Sellers' title to any material portion of the Assets or the value
thereof or to hinder or impede the operation of any of the Wells, the Section
29 Wells or the Gas Gathering Systems.
(f) WAIVERS AND CONSENTS. Sellers shall use reasonable efforts
not requiring the expenditure of money to obtain prior to Closing (i) written
waivers of all preferential rights to purchase, options to purchase and rights
of first refusal affecting any of the Assets, (ii) consents to the transfer to
Buyer of the Operating Rights and to effect the substitution of Buyer as
operator under all the Operating Agreements and (iii) the consent of all
persons required to enable Sellers to transfer the Assets, the Section 29 Wells
and the Partnership Revenue Interests to Buyer.
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(g) HSR ACT. Sellers will (i) file as promptly as practicable
with the Department of Justice and the Federal Trade Commission the
notification and report form with respect to the transactions contemplated
herein specified by the HSR Act requesting early termination of the waiting
period thereunder and (ii) respond promptly to inquiries from the Federal Trade
Commission or the Department of Justice in connection with such filing.
(h) REMOVAL OF TANK AND DRUMS. Sellers agree to remove, at their
expense, the underground collection tank located in the Red Haw Yard in
Ashtabula County, Ohio and the 48 drums of glycol at the NAP Station within
ninety (90) days after the Closing. Buyer will cooperate with Sellers, and
afford Sellers access to such property to permit such removal.
4.2 COVENANTS OF BUYER. Buyer covenants and agrees with Sellers
as follows:
(a) PUBLIC ANNOUNCEMENTS. Buyer shall not issue any public
announcement or statement with respect to the transactions contemplated hereby
except upon the consent of Sellers or upon the advice of Buyer's counsel that
such announcement or statement is required by law, regulation or rule of the
Securities and Exchange Commission or any stock exchange. Buyer shall make
available to Sellers the text of any public announcement prior to the release
of any such announcement.
(b) CONFIDENTIAL INFORMATION. The confidentiality of any data or
information received by Buyer regarding the business and assets of Sellers
shall be maintained by Buyer and its representatives in accordance with the
Confidentiality Agreement, except as provided in Section 4.1(c) hereof with
respect to the inclusion of the Statements of
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Revenues and Direct Operating Expenses of the Assets in regulatory filings
under the securities laws.
(c) HSR ACT. Buyer will (i) file as promptly as practicable with
the Department of Justice and the Federal Trade Commission the notification and
report form with respect to the transactions contemplated hereunder specified
by the HSR Act requesting early termination of the waiting period thereunder,
and (ii) respond promptly to inquiries from the Federal Trade Commission or the
Department of Justice in connection with such filing.
(d) COOPERATION. Buyer shall use reasonable efforts not requiring
the expenditure of money to cooperate with Sellers in obtaining any waivers or
consents as contemplated by Section 4.1(f). In addition, Buyer shall notify
Sellers of any title deficiencies, environmental conditions or other
information relating to the Assets or Section 29 Wells discovered by Buyer in
the course of its due diligence investigations and of which Ronald Clements,
Paul Poole, Leo Schrider or Buyer's legal department has actual knowledge which
may affect the accuracy of the representations and warranties of Sellers herein
or the information set forth in the Disclosure Schedule.
(e) UPDATING. Buyer agrees that Sellers shall have the right to
deliver a certificate to Buyer not later than three (3) business days prior to
the Closing Date notifying Buyer of any inaccuracy or breach of the
representations or warranties made by Sellers herein, in which event Buyer
shall have the right to decide whether to waive the condition to Closing set
forth in Section 6.2(a) with respect to such inaccuracy or breach. If Buyer
does waive such condition or proceeds to consummate the Closing,
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then the representations and warranties of Sellers herein shall be deemed
modified as set forth in such certificate for all purposes, including
without limitation, for purposes of indemnification under Article VIII, and
Sellers shall have no liability to Buyer with respect to such inaccuracy or
breach unless otherwise expressly agreed in writing by Sellers and Buyer at or
prior to the Closing.
ARTICLE V
MATTERS RELATING TO CERTAIN ASSETS
5.1 ASSETS EXCLUDED FROM SALE. In the event that:
(a) after the date hereof and prior to the Closing, there shall
have been any material loss or damage to any of the Assets or
Section 29 Wells, or
(b) the findings of an environmental audit of the Assets and
Section 29 Wells conducted by Buyer prior to the Closing Date
(which findings become known to Buyer after the date hereof)
disclose an environmental condition unacceptable to Buyer in
its reasonable judgment with respect to any of the Assets or
Section 29 Wells,
then in any such events Sellers shall have the right to repair or remediate
such damage or condition prior to the Closing Date. If Sellers shall fail to
so repair or remediate any such damage or condition, the parties shall endeavor
to mutually agree on the estimated cost of repair or remediation ("Repair
Costs"). If the parties mutually agree on the Repair Costs, the amount thereof
shall be for the account of Buyer, and shall reduce Sellers' Liability
Threshold (as defined in Section 8.1(b)) and shall be applied against Sellers'
Non-Environmental Liability Cap (as defined in Section 8.1(b)) or, if such
costs relate to an environmental condition, against Sellers' Liability Cap (as
defined in Section 8.1(b). If the parties are unable to agree on the amount of
such
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reduction, Buyer shall have the right to exclude from the sale hereunder
the interests of Sellers in the assets that would otherwise constitute Assets
or Section 29 Wells and to which such loss, damage or condition relates, in
which case the Purchase Price as adjusted pursuant to Section 7.2 shall be
reduced by the amount of the Purchase Price payable at the Closing allocated
thereto as set forth in Section 5.1 of the Disclosure Schedule (as such
allocation would be adjusted pursuant to Sections 1.5 and 7.2); provided that
Sellers shall not be obligated to consummate the Closing if the Purchase Price
would be reduced pursuant to this Section 5.1 by $5,600,000 or more in the
aggregate.
5.2 SUBSEQUENT PURCHASE AND SALE. Following the Closing Sellers
shall have the right to repair or remediate any of the matters referred to in
Section 5.1 with respect to any assets excluded from the sale pursuant to
Section 5.1, and Buyer will cooperate with Sellers, and afford Sellers access
to such assets and any property on which such assets are located to permit
Sellers to effect such repair or remediation. In the event that Sellers shall
have repaired or remediated such matters within twelve (12) months of the
Closing, then Sellers shall sell and Buyer shall purchase the assets so
excluded from the sale for a purchase price which will place the parties in the
same position as if such excluded assets had been transferred to Buyer on the
Closing Date (the amount of the Purchase Price reduction for such assets plus
interest thereon at 9% per annum from the Closing Date and adjustment for net
revenues from the Closing Date). Buyer shall be responsible for the operation
of all such excluded assets during such twelve
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month period and any extensions thereof, and the Administrative Services Agency
and Operating Agreement will provide for and govern such operations.
5.3 ASSETS REQUIRING CONSENTS OR WAIVERS. In the event that
Sellers have not obtained prior to the Closing (a) any third-party consent
necessary to transfer to Buyer the interests of Sellers in any Asset (including
licenses and road permits) or Section 29 Well, or (b) any waiver of
preferential purchase right, option to purchase, first refusal right or similar
right entitling the holder to purchase the interests of Sellers in any Asset or
Section 29 Well, or (c) any third-party consent necessary for the substitution
of Buyer for Quaker State or QSE&P under any Operating Agreement; or (d) any
approval or consent required to assign to Buyer any Partnership Revenue
Interest, then the sale hereunder shall nevertheless include the interests of
Sellers in such Asset, Section 29 Well, Operating Agreement or Partnership
Revenue Interest, subject however, to Sellers' repurchase obligations under
Section 5.6 with respect to any Asset, Section 29 Well, Operating Agreement
(and the Wells or Section 29 Wells to which such Operating Agreement applies)
or Partnership Revenue Interest referred to in clauses (a), (c) or (d) of this
Section 5.3.
5.4 TITLE DEFECTS.
(a) Schedule 5.4 of the Disclosure Schedule sets forth a list of
material title failures, title defects or deficiencies relating to the Wells,
the Section 29 Wells, the Leases, the Section 29 Leases or the Gathering
Systems and related rights-of-way, easements and licenses (a "Defect"). The
representations and warranties of Sellers herein shall be deemed modified as
set forth in Section 5.4 of the Disclosure Schedule
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for all purposes, including, without limitation, for purposes of
indemnification under Article VIII. Sellers shall have the right to cure or
remedy any such Defect prior to the Closing. If Sellers shall fail to cure or
remedy any such Defect, the parties shall endeavor to mutually agree on the
estimated costs of curing or remedying such Defect (the "Curing Costs"). If
the parties mutually agree on the Curing Costs of such Defect, the amount
thereof shall be for the account of Buyer, and shall reduce Sellers' Liability
Threshold (as defined in Section 8.1(b)) and shall be applied against Sellers'
Non-Environmental Liability Cap (as defined in Section 8.1(b)).
(b) If the parties are unable to agree on the Curing Costs of any
such Defect, the sale hereunder shall nevertheless include the Wells, the
Section 29 Wells, the Leases, the Section 29 Wells or the Gas Gathering Systems
to which such Defect relates, subject, however, to Sellers repurchase
obligations under Section 5.6 with respect thereto. During the twelve (12)
month period following the Closing, Buyer shall have the right, and shall use
all reasonable efforts, to remedy or cure any such Defect, and any amounts
reasonably expended by Buyer in remedying or curing such Defect shall first be
applied against Sellers Liability Threshold (and Buyer shall be entitled to
indemnification for the balance in accordance with Article VIII).
5.5 PURCHASE PRICE REDUCTION. If the aggregate Repair Costs
mutually agreed to pursuant to Section 5.1 plus the aggregate Curing Costs
mutually agreed to pursuant to Section 5.4 exceed Sellers' Liability Threshold,
the Purchase Price shall be reduced by the amount of such excess. Any
reduction of Sellers' Liability Threshold and the Purchase Price under Sections
5.1 and 5.4 shall be Buyer's sole and exclusive remedy
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with respect to all losses, damages and environmental conditions as to
which the parties have agreed in the Repair Costs and with respect to all
Defects as to which the parties have agreed on the Curing Costs, and Sellers
shall have no further liability to Buyer with respect thereto.
5.6 SELLERS REPURCHASE OBLIGATION. In the event that within
twelve (12) months after the Closing any of the consents or approvals referred
to in clauses (a), (c) or (d) of Section 5.3 shall not have been obtained by
Buyer (who shall use all reasonable efforts to obtain such consents and
approvals), or Buyer shall not have cured any Defect referred to in Section
5.4, then upon Buyer's written request given to Sellers within sixty (60) days
after the end of such twelve month period, Sellers shall, at their election,
either (i) purchase the Asset, the Operating Agreement and the Wells to which
such agreement applies and/or the Partnership Revenue Interest as to which such
consent or approval was not obtained, and/or the Well, Lease, or Gas Gathering
System specified in Buyer's written request to which such Defect relates, for a
price equal to the amount of the Purchase Price allocated thereto as set forth
in Schedule 5.1 of the Disclosure Schedule (as such allocation is adjusted
pursuant to Sections 1.5 and 7.2) plus interest thereon at 9% per annum from
the Closing Date, less net revenues from the Closing Date, or (ii) indemnify
Buyer against any loss, damage or expense sustained by Buyer with respect
thereto in accordance with Article VIII; provided, however, that Sellers'
repurchase or indemnification obligation under this Section 5.6, plus Sellers'
indemnification and other obligations under Section 8.1(a) or that otherwise
are subject to Sellers' Non-Environmental Liability Cap as defined in Section
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8.1(b), shall not exceed such Sellers' Non-Environmental Liability Cap (as such
Cap may be reduced in accordance with the provisions of this Article V). In
the event Sellers shall elect to so purchase any such Asset, Operating
Agreement and the Wells applicable thereto, Partnership Revenue Interest,
Lease, or Gas Gathering System or so indemnify Buyer, such purchase or
indemnity shall be Buyer's sole and exclusive remedy with respect thereto and
Sellers shall have no further liability to Buyer with respect thereto. In
addition, Buyer shall indemnify and hold Seller harmless from any liabilities
incurred with respect to such Assets, Operating Agreements, Leases, Partnership
Revenue Interests or Gas Gathering Systems during the period of Buyer's
ownership.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO OBLIGATIONS OF SELLERS. The obligations of
Sellers to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of all the following
conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Buyer contained herein shall be true and
correct in all material respects as of the date of this Agreement and on and as
of the Closing Date with the same effect as if made on such date.
(b) COMPLIANCE. Buyer shall have performed or complied in all
material respects with all covenants and agreements required by this Agreement
to be performed by Buyer at or prior to the Closing.
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(c) NO SUITS. No suit or other proceeding shall be pending or
threatened by any third party before any court of competent jurisdiction or any
governmental authority seeking to restrain, prohibit or declare illegal, or
seeking substantial damages in connection with, the transactions contemplated
by this Agreement. On the Closing Date, there shall be no injunction,
restraining order, judgment or decree of any nature of any court or other
governmental authority in effect that restrains or prohibits the consummation
of the transactions contemplated by this Agreement.
(d) HSR ACT. All applicable waiting periods under the HSR Act
shall have expired or been terminated.
(e) CONSENTS. All approvals, filings, authorizations and consents
listed in Schedule 6.1(e) of the Disclosure Schedule shall have been obtained
or made.
(f) PURCHASE PRICE REDUCTIONS. The Purchase Price shall not be
reduced pursuant to Sections 5.1 and 5.4 by $5,600,000 or more in the
aggregate.
(g) DESIGNATED EMPLOYEES CERTIFICATES. Sellers shall have
received from each of the Designated Employees a certificate dated the Closing
Date and in form and substance satisfactory to Sellers stating that, to their
knowledge as of the date hereof and the Closing Date, the representations and
warranties of Sellers contained in Article II were and are true and correct in
all material respects, and that such Designated Employee has not received any
notice or claim or threat thereof referred to in any provision of Article II or
Section 4.1 that such Designated Employee has not fully transmitted in writing
to the Legal Department of Quaker State prior to the Closing Date.
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6.2 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer
to consummate the transactions contemplated by this Agreement are subject to
the satisfaction at or prior to the Closing of all the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Sellers contained herein (as modified
pursuant to Section 4.2(e) and by the transactions permitted by this Agreement
and by Schedule 5.4 of the Disclosure Schedule) shall be true and correct in
all material respects as of the date of this Agreement and on and as of the
Closing Date with the same effect as if made on such date.
(b) COMPLIANCE. Sellers shall have performed or complied in all
material respects with all covenants and agreements required by this Agreement
to be performed by Sellers at or prior to the Closing.
(c) NO SUITS. No suit or other proceeding shall be pending or
threatened by any third party before any court of competent jurisdiction or any
governmental authority seeking to restrain, prohibit or declare illegal, or
seeking substantial damages in connection with, the transactions contemplated
by this Agreement. On the Closing Date, there shall be no injunction,
restraining order, judgment or decree of any nature of any court or other
governmental authority in effect that restrains or prohibits the consummation
of the transactions contemplated by this Agreement.
(d) TAX CLEARANCE CERTIFICATE. Sellers shall have provided Buyer
with tax clearance certificates or other similar documents that may be required
by any state
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taxing authority in order to relieve Buyer of any obligation to withhold any
material portion of the Purchase Price.
(e) HSR ACT. All applicable waiting periods under the HSR Act
shall have expired or been terminated.
ARTICLE VII
CLOSING
7.1 CLOSING. The consummation of the transactions contemplated
hereby (the "Closing") will be held at such place, time and date as Sellers and
Buyer may mutually agree, but in no event later than September 15, 1995 (unless
extended by mutual agreement). The date upon which Closing actually occurs is
referred to herein as the Closing Date.
7.2 PURCHASE PRICE ADJUSTMENTS. The Purchase Price shall be
adjusted as follows:
(a) The Purchase Price shall be increased by the following:
(i) the value of oil in tanks (excluding basic sediment
and water and anything below the water draw valve) as
of the close of business on December 31, 1994;
(ii) the amount of all direct costs and expenses
(including abandonment expenses) paid or incurred by
Sellers with respect to the Assets and Section 29
Wells during the period January 1, 1995 through the
Closing Date (the "Adjustment Period");
(iii) the amount of all direct costs and other capital
expenditures paid or incurred by Sellers approved in
writing in advance by Buyer which relate to the
drilling, completing, equipping and connecting to the
Gas Gathering Systems of oil and gas wells by Sellers
during the Adjustment Period, including intangible
drilling and development costs, dry hole costs and
the cost of purchased well equipment (excluding
transfers from inventory);
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(iv) the amount of all direct costs and other capital
expenditures paid or incurred by Sellers, approved in
writing in advance by Buyer, which relate to the
re-working or re-equipping of the Wells or the
Section 29 Wells during the Adjustment Period;
(v) the amount of all other capital expenditures paid
or incurred by Sellers and approved in writing in
advance by Buyer;
(vi) an amount equal to (x) the amount of Administrative
Expense incurred by Quaker State's Natural Gas
Exploration and Production Division during the
Adjustment Period, plus (y) the amount of the
Management Fee charged by Quaker State to such
Division during the Adjustment Period, in each case
determined in a manner consistent with the historical
practices of Sellers in developing their internal
reporting of revenues and expenses as used or
reflected in the 1994 income statement for Quaker
State's Natural Gas Exploration and Production
Division, minus (z) an amount calculated at $6,000
per month during the Adjustment Period.
(vii) the amount of all severance, production, excise or
similar taxes and assessments based upon, measured by
or imposed with respect to the production of
hydrocarbons from the Wells or the receipt of
proceeds therefrom during the Adjustment Period and
not reimbursed by the purchaser of production.
(b) The Purchase Price shall be decreased by the following:
(i) the aggregate amount of all revenues received or
accrued by Sellers which are attributable, under
generally accepted accounting principles consistently
applied in accordance with Sellers' historical
practices, to the operation of the Assets during the
Adjustment Period including, without limitation,
revenues received or accrued from the sale of oil and
gas produced from the Producing Properties (net of
any royalties or other burdens on production),
revenues attributable to the Non-Operated Royalty
Interests, revenues received or accrued from the
marketing or transportation of gas and revenues
received or accrued from equipment rentals and the
sale, salvage or other disposition of the Assets
during the Adjustment Period;
(ii) the aggregate amount of all revenues received or
accrued by Quaker State or QSE&P in its capacity as
operator of oil and gas wells under the Operating
Agreements which are attributable, under generally
accepted accounting principles, consistently applied
in accordance with Sellers' historical practices to
contract
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administrative and well operating services
during the Adjustment Period;
(iii) the value (determined by the contract price in effect
on the Closing Date) of gas which Quaker State or
QSE&P was obligated to deliver to third parties after
the Closing Date and for which Quaker State or QSE&P
had received payment on or before the Closing Date;
(iv) the amount of any transfer taxes or conveyance fees
payable by Buyer for which Sellers are liable under
Section 7.6 in connection with the sale of the
Assets;
(v) the aggregate reductions agreed upon by Sellers and
Buyer pursuant to Sections 5.1 and 5.4 and for assets
excluded from the sale pursuant to the provisions of
Section 5.1;
(vi) an amount equal to 99% of the net revenues of Sellers
attributable to production from the Section 29 Wells
during the Adjustment Period; and
(vii) an amount equal to 99% of the net revenues received
or accrued by the Partnerships during the Adjustment
Period allocable to the interests of Sellers in such
Partnerships;
(viii) estimated real estate taxes and assessments
on fee interests in real property included in
the Assets for any period ending on or before
December 31, 1994.
In the event that the Purchase Price is so decreased by any amount of
revenues accrued by Sellers, Buyer shall promptly remit to Sellers any amount
of such revenue if and to the extent received by Buyer.
7.3 CLOSING ESTIMATE. At least three (3) business days prior to
the Closing Date, Sellers shall prepare and deliver to Buyer an estimate of the
adjustments to the Purchase Price to be made pursuant to Section 7.2 setting
forth in reasonable detail the calculation thereof. The Purchase Price as
adjusted in accordance with such estimate is hereinafter referred to as the
"Estimated Purchase Price."
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7.4 CLOSING OBLIGATIONS OF SELLERS. At the Closing, Sellers shall
deliver to Buyer such deeds, assignments, bills of sale, certificates of title
and other instruments of transfer as are necessary to transfer all the right,
title and interest of Sellers in and to the Assets (other than fee mineral
interests), free and clear of all mortgages, liens, security interests and
similar encumbrances (other than those contemplated hereby), in form and
substance mutually satisfactory to Sellers and Buyer. Sellers shall deliver to
Buyer deeds to the fee mineral interests included in the Assets as soon as
reasonably practicable after the Closing. In addition, Sellers shall execute
and deliver to Buyer (a) an instrument or instruments conveying the Production
Payment and granting the related purchase option as provided in Section 1.4(a),
such instruments to be in form and substance mutually satisfactory to Sellers
and Buyer, (b) an instrument or instruments assigning to Buyer the Partnership
Revenue Interests as provided in Section 1.4(b), such instruments to be in form
and substance mutually satisfactory to Sellers and Buyer, (c) an Administrative
Services Agency and Operating Agreement in form and substance mutually
satisfactory to Sellers and Buyer (the "Administrative Services Agency
Agreement") and (d) an updated schedule of the amounts being held in suspense
accounts. Within 90 days after the Closing, Sellers will deliver a check
payable to Buyer for the aggregate amount being held in such accounts that are
attributable to the Assets.
7.5 CLOSING OBLIGATIONS OF BUYER. At the Closing, Buyer shall (a)
pay (by wire transfer of federal or other immediately available funds in the
amount of the Estimated Purchase Price and (b) execute and deliver to the
Escrow Agent (i) the Assumption
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Agreement, (ii) the agreements referred to in Section 1.4(b), (iii) a Crude Oil
Supply Agreement in form and substance satisfactory to Sellers and Buyer and
(iv) the Administrative Services Agency Agreement.
7.6 RECORDING FEES. The recording fees for the deeds, assignments
and other instruments transferring the Assets to Buyer shall be borne and paid
by Buyer. Each of the Sellers, on the one hand, and Buyer, on the other hand,
shall bear and pay all sales, transfer, conveyance and similar taxes, fees and
charges arising in connection with the transactions contemplated by this
Agreement which are imposed or assessed against such party under applicable
law.
7.7 DELIVERY OF RECORDS, ETC. On the Closing Date or as soon
thereafter as practicable, Sellers will deliver or cause to be delivered to
Buyer at Sellers' offices or other location specified by Sellers all original
copies of the Records. For a period equal to the greater of five (5) years
after the Closing Date and the period of any statute of limitations under the
Code or any extension thereof, Buyer shall preserve and maintain same and
permit Sellers and their authorized representatives to have reasonable access
thereto. At the end of such period, Buyer shall offer the Records to the
Sellers. Notwithstanding the foregoing, during such period, Buyer may dispose
of any such Records which are first offered to, but not accepted by, Sellers.
7.8 SETTLEMENT STATEMENT. Within six (6) months following the
Closing, Sellers and Buyer shall jointly prepare a statement (the "Settlement
Statement") setting forth the final adjustments to be made to the Purchase
Price pursuant to Section 7.2. If Sellers and Buyer are unable to agree on the
Settlement Statement within such
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six-month period, an independent accounting firm, mutually acceptable to
Sellers and Buyer, shall be engaged to determine the amount of such final
adjustments to the Purchase Price. The decision of such independent accounting
firm shall be binding upon the parties, and the fees and expenses of such
independent accounting firm shall be borne one-half by Buyer and one-half by
Sellers. The Purchase Price as so adjusted is referred to herein as the "Final
Purchase Price". If the Estimated Purchase Price exceeds the Final Purchase
Price, Sellers shall pay to Buyer the amount of such excess plus interest
thereon at the rate of 9% per annum from the Closing Date to the date of
payment. If the Final Purchase Price exceeds the Estimated Purchase Price,
Buyer shall pay to Sellers the amount of such excess plus interest thereon at
the rate of 9% per annum from the Closing Date to the date of payment. Any
payments contemplated by this Section 7.8 shall be made by wire transfer of
federal or other immediately available funds within five (5) business days
after the date of such final determination.
ARTICLE VIII
EXTENT AND SURVIVAL OF
REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
8.1 INDEMNIFICATION OF BUYER.
(a) Subject to the other provisions of this Article VIII, Sellers
agree after the Closing to indemnify Buyer against, and hold Buyer harmless
from, any loss, damage or expense (including reasonable attorneys' fees)
sustained by Buyer to the extent arising out of or resulting from (i) any
inaccuracy in or breach of any of the representations, warranties or covenants
made by Sellers in this Agreement, (ii) any Defect (as defined
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in Section 5.4) to the extent provided in Section 5.4(b), (iii) any
failure of Sellers to pay, perform, fulfill and discharge all costs, expenses
and liabilities (other than the Assumed Obligations) incurred by them in
connection with the Assets and Section 29 Wells prior to the Closing Date with
respect to Sellers' ownership or operation of the Assets and Section 29 Wells
prior to the Closing Date including, without limitation, all such amounts
payable after the Closing Date to holders of royalty, overriding royalty,
working or other interests in the Wells and Section 29 Wells with respect to
the sale of oil and gas or other hydrocarbons prior to the Closing Date and all
severance, production, ad valorem and similar production based taxes due and
payable after the Closing Date with respect to the sale of oil, gas or other
hydrocarbons from the Wells and Section 29 Wells prior to the Closing Date,
(iv) any claims, losses, damages, costs, expenses, causes of action and
judgments of any kind or character with respect to any liabilities (other than
the Assumed Obligations) to the extent arising prior to the Closing Date out of
or in connection with Sellers' ownership and operation of the Assets and
Section 29 Wells prior to the Closing Date, including, without limitation, any
interest, penalty and other reasonable costs and expenses incurred in
connection therewith or the defense thereof; and (v) the non-compliance by
Sellers with the bulk sales laws of Pennsylvania, West Virginia, Ohio or New
York.
(b) Notwithstanding the provisions of Section 8.1(a), Sellers
shall not be required to indemnify or hold harmless Buyer with respect to any
claim for indemnification thereunder and shall not be liable for the inaccuracy
or breach of any warranty, representation, covenant or agreement made by
Sellers herein (including, but
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not limited to, the provisions of Section 8.1(a)) or in connection with the
transactions contemplated hereby or for any Defect, except to the extent and by
the amount that the loss, damage or expense to Buyer resulting from the
breach of one or more of such warranties, representations, covenants or
agreements and/or from one or more Defects shall exceed $150,000 in the
aggregate (the "Liability Threshold"), nor shall Sellers' aggregate liability
therefor (including for any repurchase or indemnification obligation under
Section 5.6) exceed $10,000,000 for matters not involving the breach of the
representations and warranties of Sellers relating to environmental matters set
forth in Sections 2.9(b), 2.9(d), 2.9(e) or 2.20 (the "Non-Environmental
Liability Cap") and $25,000,000 including the breach of such representations
and warranties relating to environmental matters set forth in such Sections
(the "Liability Cap"), in each case as such Caps may be reduced in accordance
with the provisions of Article V. In the event of the breach of a
representation or warranty relating to Sellers' title to any of the Assets not
excluded from the sale for which Sellers are liable to Buyer under Section
8.1(a), Sellers shall have the opportunity to cure the title defect involved
and any amounts expended by Sellers in curing title shall be applied against
Sellers' Non-Environmental Liability Cap under this Section 8.1(b). In the
event of the breach of the representations and warranties of Sellers relating
to environmental matters or set forth in Sections 2.9(b), 2.9(d), 2.9(e) or
2.20 for which Sellers are liable to Buyer under Section 8.1(a), Sellers shall
have the right to control and perform any environmental remediation work
subject to Buyer's approval (which shall not be unreasonably withheld), and any
amounts expended by Sellers in connection with such remediation work shall be
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applied against Sellers' Liability Cap under this Section 8.1(b). The
indemnity provided for in this Section 8.1 shall be the sole and exclusive
remedy of Buyer for any inaccuracy or breach of any representation or warranty
or any breach of any covenant or agreement of Sellers made in or in
connection with this Agreement or the transactions contemplated hereby, except
for any inaccuracy or breach arising from facts or conditions with respect to
which Buyer receives a purchase price adjustment or reduction in Sellers'
Liability Threshold pursuant to Sections 5.1, 5.4 or 7.2 (as to which
inaccuracy or breach such purchase price adjustment or reduction in Sellers'
Liability Threshold shall be the sole and exclusive remedy of Buyer).
8.2 INDEMNIFICATION OF SELLERS. Buyer agrees after the Closing to
(i) indemnify Sellers against, and hold Sellers harmless from, any loss, damage
or expense (including reasonable attorneys' fees) sustained by Sellers arising
out of or resulting from any inaccuracy in or breach of any of the
representations, warranties or covenants made by Buyer in this Agreement, (ii)
pay, perform, fulfill and discharge the Assumed Obligations and all costs,
expenses and liabilities incurred from and after the Closing Date with respect
to the ownership or operation of the Assets from and after the Closing Date,
(iii) indemnify, defend and hold Sellers harmless from and against any and all
claims, losses, damages, costs, expenses, causes of action and judgments of any
kind or character with respect to all liabilities arising out of or in
connection with the ownership or operation of the Assets from and after the
Closing Date, including, without limitation, any interest, penalty and other
costs and expenses incurred in connection therewith or the defense thereof, and
(iv) to pay to the holders of royalty, overriding
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royalty and working interests in the Wells and Section 29 Wells the amounts to
which they are entitled with respect to the oil, gas and other hydrocarbons
produced therefrom and sold prior to the Closing Date to the extent of the
aggregate amount held by Sellers in suspense accounts and paid over to Buyer at
the Closing.
8.3 SURVIVAL. The representations and warranties set forth in
this Agreement shall survive the Closing for a period expiring on the second
anniversary of the Closing Date (the "Expiration Date"), following which date
such representations and warranties shall be of no further force or effect, and
none of the parties may bring any action or present any claim for any
inaccuracy or breach of such representations and warranties; provided, however,
that there shall be no termination of any indemnified party's right to assert a
bona fide claim for indemnification for the inaccuracy or breach of any
representation or warranty of any indemnifying party under Section 8.1 or 8.2
and to be indemnified with respect thereto in accordance with the provisions of
Article VIII if such claim has been asserted in writing in reasonable detail
and transmitted to the indemnifying party prior to the Expiration Date. The
covenants and agreements of Sellers and Buyer set forth in this Agreement shall
terminate on the Expiration Date and thereafter shall be of no further force or
effect; provided, however, that there shall be no termination of any covenant
or agreement with respect to a bona fide claim for breach thereof (or in the
case of Article VIII, for indemnification thereunder) if such claim has been
asserted in writing in reasonable detail and transmitted to the party against
whom such claim is asserted prior to the Expiration Date.
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8.4 ASSUMPTION OF DEFENSE. In the case of any claim asserted by a
third party against a party indemnified pursuant to Section 8.1 or 8.2, written
notice shall be given to the indemnifying party and the indemnified party shall
permit the indemnifying party to assume the defense of any such litigation or
claim (or litigation resulting therefrom); provided that counsel for the
indemnifying party who shall conduct the defense of such claim or litigation
shall be approved by the indemnified party (which approval shall not be
unreasonably withheld). The indemnified party may only participate in such
defense at its own expense; provided, however, that the indemnifying party
shall pay such expense to the extent required under Section 8.1 or 8.2, as
applicable, if the indemnifying party shall not in fact have employed counsel
to assume the defense of such claim or litigation. In the defense of any such
claim or litigation, the indemnifying party shall not, except with the consent
of the indemnified party (which shall not be unreasonably withheld), consent to
the entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to the
indemnified party as the case may be, of a release from all liability in
respect of such claim or litigation. The indemnifying party and the
indemnified party shall cooperate in the defense of any claim or litigation
subject to this Article VIII and the records of each shall be available to the
other with respect to such defense.
8.5 ADJUSTMENTS TO INDEMNIFICATION PAYMENTS. Any payment required
to be made by the indemnifying party pursuant to Section 8.1 or 8.2 in respect
of any claim shall be net of any proceeds realized by and paid to the
indemnified party in respect of such claim under any applicable insurance or
other indemnities or warranties. The
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indemnified party shall use its reasonable efforts to make claims under any
applicable insurance or other indemnities or warranties relating to any claim
for which it is seeking indemnification pursuant to this Article VIII. Any
payment made by the indemnifying party to or on behalf of the indemnified party
pursuant to this Article VIII shall not take into account, and the indemnified
party shall have no claim for indemnification and the indemnifying party shall
not be liable in respect of, (a) any taxes (including all interest and
penalties thereon) attributable to the receipt or payment of any indemnity
payment by the indemnifying party pursuant to this Article VIII, or (b) any
punitive, exemplary, consequential or similar damages, except for such damages
awarded with respect to a claim asserted by a third party against the
indemnified party to the extent such indemnified party is entitled to
indemnification hereunder with respect thereto. Unless otherwise required by
law, each of the Sellers and Buyer agree to treat any such indemnity payment by
the other party as an adjustment to the Purchase Price for tax purposes.
ARTICLE IX
TERMINATION
9.1 TERMINATION. This Agreement may be terminated in the following
instances:
(a) Subject to Section 9.2(a), by written notice from either Buyer
or Sellers to the other if the Closing shall not have occurred on or prior to
5:00 p.m. New York City time on September 15, 1995;
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(b) By written notice from either Buyer or Sellers to the other if
a final non-appealable judgment or order has been entered against Buyer or
either of the Sellers restraining, prohibiting, declaring illegal or awarding
substantial damages in connection with the transactions contemplated hereby;
(c) Subject to Section 9.2(a), by written notice from Sellers to
Buyer if any of the conditions contained in Section 6.1 hereof are not
satisfied at the time established (pursuant to Section 7.1) for the Closing to
occur;
(d) Subject to Section 9.2(a), by written notice from Buyer to
Sellers if any of the conditions contained in Section 6.2 hereof are not
satisfied at the time established (pursuant to Section 7.1) for the Closing to
occur; or
(e) At any time by the mutual written agreement of Buyer and
Sellers.
9.2 EFFECT OF TERMINATION; LIMITATION ON RIGHT TO TERMINATE.
(a) Neither Sellers nor Buyer shall be allowed to exercise any
right of termination pursuant to Section 9.1 if the event giving rise to the
termination right shall be due to the failure of the party seeking to terminate
this Agreement to perform in any material respect any of the covenants or
agreements set forth herein to be performed by such party.
(b) If this Agreement is terminated as permitted under Section
9.1, such termination shall be without liability to any party to this
Agreement; provided, however, that if this Agreement is terminated pursuant to
the provisions of Sections 9.1(a), 9.1(c) or 9.1(d) due to the failure of any
party to perform in any material respect any of the covenants or agreements set
forth herein to be performed or observed by such party,
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such party shall pay to the other as liquidated damages the sum of
$1,000,000 in cash on demand. Such payment shall be the sole and exclusive
remedy of the recipient with respect to any such failure to perform by the
other.
(c) Sellers and Buyer hereby agree that the provisions of this
Section 9.2 and of Sections 10.6 and 4.2(b) shall survive any termination of
this Agreement pursuant to the provisions of Section 9.1.
ARTICLE X
MISCELLANEOUS
10.1 EMPLOYMENT AND SEVERANCE MATTERS. Buyer shall have the right
(but not the obligation) prior to the Closing to interview employees of Sellers
and to extend offers of employment to such of those employees as Buyer shall
determine. For each Quaker State or QSE&P employee hired by Buyer and
subsequently laid off or discharged by Buyer for other than good cause during
the one hundred twenty (120) day period following the Closing, Quaker State
agrees to provide severance benefits for such employee in accordance with
Quaker State policies and practices as presently in effect.
10.2 EXCLUSIVE AGREEMENT. This Agreement supersedes all prior
written or oral agreements between the parties with respect to the transactions
contemplated herein, other than the Confidentiality Agreement and, except for
such Confidentiality Agreement, is intended as a complete and exclusive
statement of the terms of the agreement between the parties with respect to the
transactions contemplated herein.
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10.3 AMENDMENTS. No amendment or modification of this Agreement
and no waiver hereunder shall be binding unless set forth in writing and duly
executed by the party against whom enforcement of the amendment, modification
or waiver is sought. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Terms such as "herein," "hereby," "hereto"
and "hereof" refer to this Agreement as a whole.
10.4 BENEFIT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement shall not be assignable or otherwise transferable by
any party hereto without the written consent of the other party hereto. No
such assignment shall release any party of any of its obligations under this
Agreement. Nothing in this Agreement shall entitle any person other than the
parties hereto and their respective successors and permitted assigns to any
claim, cause of action, remedy or right of any kind. As used herein, the terms
"Sellers' knowledge", "knowledge of Sellers", "best knowledge of Sellers", and
"known to Sellers" and similar references shall mean the actual knowledge of
any of the Designated Employees. "Designated Employees" means the directors
and officers of each of the Sellers and Carl Carlson, Duane Clark, Sam Barber,
Janus Morris, Shirley Riddle and Frank Rotundo. For purposes of Article II and
Section 4.1, Sellers shall not be deemed to have received any notice or claim
or threat thereof unless such notice or claim or threat thereof shall have been
received in writing (or, in the case of any oral notice from any governmental
authority referred to in Section
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2.20(d), orally) by the Legal Department of Quaker State or by one of the
Designated Employees.
10.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute but one and the same agreement.
10.6 EXPENSES. Sellers, on the one hand, and Buyer on the other
hand, shall bear their respective expenses, costs and fees (including transfer
taxes, attorneys', auditors' and financing commitment fees) in connection with
the transactions contemplated hereby including the preparation, execution and
delivery of this Agreement and compliance herewith, whether or not the
transactions contemplated hereby shall be consummated.
10.7 FURTHER ASSURANCES.
(a) The parties hereto each agree to deliver or cause to be
delivered to the other on the Closing Date, and at such other times thereafter
as shall be reasonably requested, any additional instrument that the other may
reasonably request for the purpose of carrying out this Agreement.
(b) After the Closing, Sellers and Buyer shall execute,
acknowledge and deliver all such further conveyances, transfer orders, division
orders, notices, assumptions, releases and acquittances, and such other
instruments, and shall take such further actions not requiring any expenditure
of money as may be reasonably necessary or appropriate to assure fully to
Buyer, its successors or assigns, ownership of all of the Assets intended to be
conveyed to Buyer pursuant to this Agreement.
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10.8 NO OTHER REPRESENTATIONS OR WARRANTIES, ETC. NOTWITHSTANDING
ANYTHING CONTAINED IN THIS AGREEMENT, IT IS THE EXPLICIT INTENT AND
UNDERSTANDING OF EACH OF THE PARTIES THAT NONE OF THE PARTIES IS MAKING ANY
REPRESENTATION OR WARRANTY WHATSOEVER, ORAL OR WRITTEN, EXPRESS OR IMPLIED,
OTHER THAN THOSE SET FORTH IN ARTICLES II AND III AND NONE OF THE PARTIES IS
RELYING ON ANY STATEMENT, REPRESENTATION OR WARRANTY, ORAL OR WRITTEN, EXPRESS
OR IMPLIED, MADE OR COMMUNICATED TO SUCH PARTY, EXCEPT FOR THE REPRESENTATIONS
AND WARRANTIES SET FORTH IN SUCH ARTICLES. EXCEPT AS OTHERWISE SPECIFICALLY
SET FORTH IN THIS AGREEMENT, SELLERS EXPRESSLY DISCLAIM ANY EXPRESS OR IMPLIED
WARRANTY OR REPRESENTATION AS TO THE CONDITION, MERCHANTABILITY, USEFULNESS OR
SUITABILITY FOR ANY PURPOSE OF ANY OF THE ASSETS, AND IT IS UNDERSTOOD AND
AGREED THAT, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT,
BUYER TAKES THE ASSETS "AS IS" AND "WHERE IS", IN THEIR THEN PRESENT CONDITION
AND STATE OF REPAIR WITH ALL FAULTS. THE PARTIES AGREE THAT THIS IS AN ARM'S
LENGTH TRANSACTION IN WHICH THE PARTIES' UNDERTAKINGS AND OBLIGATIONS ARE
LIMITED TO THE PERFORMANCE OF THEIR OBLIGATIONS UNDER THIS AGREEMENT. BUYER
ACKNOWLEDGES THAT IT HAS ONLY A CONTRACTUAL RELATIONSHIP WITH SELLERS, BASED
SOLELY ON THE TERMS OF THIS
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AGREEMENT, AND THAT THERE IS NO SPECIAL RELATIONSHIP OF TRUST OR RELIANCE
BETWEEN BUYER AND SELLERS.
10.9 ACCESS TO COMPUTER. From the Closing Date until November 1,
1995, Sellers agree that Buyer shall have reasonable access to the computer to
the extent available at the corporate offices of Sellers in Oil City,
Pennsylvania to assist Buyer in disbursing royalties, rentals and production
revenue checks.
10.10 BULK SALES COMPLIANCE WAIVER. Buyer hereby waives compliance by
Sellers with any applicable bulk sales laws.
10.11 NOTICES. Any notice, request, instruction or other
communication required or permitted to be given hereunder by either Sellers or
Buyer to the other shall be in writing and shall be duly given if (a) delivered
by hand, (b) mailed by certified mail, return receipt requested, (c) sent by
telecopier, or (d) sent by Express Mail, Federal Express or other courier
delivery service, as follows:
If to Sellers, addressed to:
Quaker State Corporation
255 Elm Street
Oil City, PA 16301
Attention: Paul C. Konney
Telephone: (814) 676-7676
Telecopier: (814) 676-7030
If to Buyer, addressed to:
Belden & Blake Corporation
5200 Stoneham Road
North Canton, Ohio 44720
Attention: Joseph M. Vitale
Telephone: (216) 499-1660
Telecopier: (216) 497-5470
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or, in each case, at such other address as may be specified in writing to the
other party hereto in accordance herewith.
Notice given by hand, Express Mail, Federal Express or other courier
delivery service or by mail shall be effective upon receipt. Notice given by
telecopier shall be effective upon actual receipt if received during the
recipients' normal business hours, or at the beginning of the recipients' next
business day after receipt if not received during the recipients' normal
business hours. All notices by telecopier shall be confirmed by the sender
promptly after transmission in writing by certified mail or personal delivery.
Any party may change the address to which notice is to be given to it by giving
notice as provided above of such change of address.
10.12 GOVERNING LAW, ETC. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of New York, without giving effect to the conflict of laws
rules thereof. Buyer and Sellers hereby irrevocably submit to the jurisdiction
of the courts of the State of New York and the Federal courts of the United
States of America located in the State, City and County of New York solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement, and hereby waive,
and agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or
is not maintainable in said courts or that the venue thereof may not be
appropriate or that this Agreement or any of such document may not be enforced
in or by said courts, and the parties
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hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a New York State or Federal
court. Buyer and Sellers hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of any
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 10.11, or
in such other manner as may be permitted by law, shall be valid and sufficient
service thereof.
10.13 WAIVER OF PUNITIVE DAMAGES. THE PARTIES TO THIS AGREEMENT
EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY,
CONSEQUENTIAL OR SIMILAR DAMAGES IN (I) ANY CLAIM FOR INDEMNIFICATION UNDER
ARTICLE VIII OF THIS AGREEMENT OR (II) ANY ARBITRATION, LAWSUIT, LITIGATION OR
PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR CLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY RELATED DOCUMENT, OR THE BREACH,
TERMINATION OR VALIDITY OF ANY PROVISION OF THIS AGREEMENT OR ANY RELATED
DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY RELATED
DOCUMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVER, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF
THIS WAIVER, (C) IT MAKES THIS WAIVER
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VOLUNTARILY AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.13.
10.14 WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES AND AGREES THAT
ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT OR ANY
RELATED DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY
RELATED DOCUMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER, (B) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER VOLUNTARILY, AND (D) IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.14.
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Executed as of the date first set forth above.
SELLERS:
QUAKER STATE CORPORATION
By: /s/ CONRAD A. CONRAD
QSE&P, INC.
By: /s/ CONRAD A. CONRAD
BUYER:
BELDEN & BLAKE CORPORATION
By: /s/ H. S. BELDEN
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<PAGE> 1
Exhibit 3(i)
C E R T I F I C A T E
O F
I N C O R P O R A T I O N
O F
QUAKER STATE CORPORATION
------------------------
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<PAGE> 2
C E R T I F I C A T E
O F
I N C O R P O R A T I O N
O F
QUAKER STATE CORPORATION
**********
FIRST. The name of the corporation is Quaker State
Corporation.
SECOND. Its registered office in the State of Delaware
is located at 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name and address of its registered
agent is The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware.
THIRD. The nature of the business, or objects or
purposes to be transacted, promoted or carried on are:
To purchase, lease or otherwise acquire lands, or oil,
gas and mineral rights in land, for the purpose of producing and
to produce therefrom oil, gas, or other volatile or mineral
substances; to develop said lands by drilling oil and gas wells
thereon and by the installation of plants, machinery and
appliances for said purposes and to deal in, transport, store,
supply, market and sell oil, gas or volatile or mineral substances
for either light, heat or both or other purposes and for any or
all of said purposes to own, maintain and operate pipes, pipe
lines, tanks, and such other devices, property and appliances as
may be necessary and incidental thereto.
To produce or otherwise acquire, transport, store and
refine petroleum and manufacture, compound and deal in the refined
and semi-refined products of petroleum, and own and operate all
property, plants and refineries necessary and incidental thereto.
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To acquire by exchange or otherwise and subscribe for,
purchase, hold, own, assign, pledge and otherwise dispose of
shares of capital stock, bonds, mortgages, debentures, notes and
other securities, obligations, contracts and evidences of
indebtedness of corporations of this State, including this
corporation, or of any other State, Country, Nation or Government
and to issue, execute and deliver in exchange therefor its stocks,
bonds or other obligations and to exercise in respect of any such
shares of stock, bonds and other securities so held, owned or
possessed, any and all rights, powers and privileges of ownership.
To manufacture, purchase or otherwise acquire, own,
mortgage, pledge, sell, assign and transfer, or otherwise dispose
of, to invest, trade, deal in and deal with goods, wares and
merchandise and real and personal property of every class and
description.
To acquire, and pay for in cash, stock or bonds of this
corporation or otherwise, the good will, rights, assets and
property, and to undertake or assume the whole or any part of the
obligations or liabilities of any person, firm, association or
corporation.
To acquire, hold, use, sell, assign, lease, grant
licenses in respect of, mortgage, or otherwise dispose of letters
patent of the United States or any foreign country, patent rights,
licenses and privileges, inventions, improvements and processes,
copyrights, trademarks and trade names, relating to or useful in
connection with any business of this corporation.
To guarantee, purchase, hold, sell, assign, transfer,
mortgage, pledge or otherwise dispose of shares of the capital
stock of, or any bonds, securities or evidences of indebtedness
created by any other corporation or corporations organized under
the laws of the this State or any other State, Country, Nation or
Government, and while the owner thereof to exercise all the
rights, powers and privileges of ownership.
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To enter into, make and perform contracts of every kind
and description with any person, firm, association, corporation,
municipality, county, state, body politic or government or colony
or dependency thereof.
To borrow or raise moneys for any of the purposes of
the corporation and, from time to time, without limit as to
amount, to draw, make, accept, endorse, execute and issue
promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or non-negotiable instruments and
evidences of indebtedness, and to secure the payment of any
thereof and of the interest thereon by mortgage upon or pledge,
conveyance or assignment in trust of the whole or any part of the
property of the corporation, whether at the time owned or
thereafter acquired and to sell, pledge or otherwise dispose of
such bonds or other obligations of the corporation for its
corporate purposes.
To purchase, hold, sell and transfer the shares of its
own capital stock; provided it shall not use its funds or property
for the purchase of its own shares of capital stock when such use
would cause any impairment of its capital except as otherwise
permitted by law, and provided further that shares of its own
capital stock belonging to it shall not be voted upon directly or
indirectly.
To have one or more offices, to carry on all or any of
its operations and business and without restriction or limit as to
amount to purchase or otherwise acquire, hold, own, mortgage,
sell, convey, or otherwise dispose of real and personal property
of every class and description in any of the States, Districts,
Territories or Colonies of the United States, and in any and all
foreign countries, subject to the laws of such State, District,
Territory, Colony or Country.
In general, to carry on any other business in
connection with the foregoing, and to have and exercise all the
powers conferred by the laws of Delaware upon corporations formed
under the act hereinafter referred to, and to do any or all of the
things hereinbefore set forth to the same extent as natural
persons might or could do.
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The objects and purposes specified in the foregoing
clauses shall, except where otherwise expressed, be in nowise
limited or restricted by reference to, or inference from, the
terms of any other clause in this certificate of incorporation,
but the objects and purposes specified in each of the foregoing
clauses of this article shall be regarded as independent objects
and purposes.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is Ninety-five Million
(95,000,000) shares of the par value of one dollar ($1.00) each.
FIFTH: Except as authorized by the Board of Directors
in its discretion, no stockholder of any class shall have any
preemptive or preferential right to purchase or subscribe for
either (i) any shares of the Corporation which the Corporation may
issue or sell, whether out of the number of shares authorized by
this Certificate of Incorporation or any amendment hereto or
whether out of shares of the Corporation acquired by the
Corporation after the issue thereof, or (ii) any obligation or
security of the Corporation which the Corporation may issue or
sell, that shall be convertible into, or exchangeable for, any
shares of the Corporation of any class, or (iii) any warrant or
option of the Corporation which the Corporation may issue or sell,
that confers upon the holder or owner thereof the right to
subscribe for or purchase from the Corporation any shares of the
Corporation of any class.
SIXTH. The amount of capital with which the
corporation will commence business is One Hundred Thousand Dollars
($100,000).
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SEVENTH. The names and places of residence of the
incorporators are as follows:
<TABLE>
<CAPTION>
NAMES RESIDENCES
----- ----------
<S> <C>
C.S. Peabbles Wilmington, Delaware
H. H. Snow Wilmington, Delaware
L. H. Herman Wilmington, Delaware
</TABLE>
EIGHTH. The corporation is to have perpetual
existence.
NINTH. The private property of the stockholders shall
not be subject to the payment of corporate debts to any extent
whatsoever.
TENTH. In furtherance, and not in limitation of the
powers conferred by statute, the board of directors is expressly
authorized:
To make and alter the by-laws of the corporation.
To authorize and cause to be executed mortgages and
liens upon the real and personal property of the corporation.
To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper
purpose or to abolish any such reserve in the manner in which it
was created.
By resolution or resolutions, passed by a majority of
the whole Board to designate one or more committees, each
committee to consist of two or more of the directors of the
corporation, which, to the extent provided in said resolution or
resolutions or in the by-laws of the corporation, shall have and
may exercise the powers of the board of directors in the
management of the business and affairs of the corporation, and may
have power to authorize the
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seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or
names as may be stated in the by-laws of the corporation or as may
be determined from time to time by resolution adopted by the board
of directors.
When and as authorized by the affirmative vote of the
holders of a majority of the stock issued and outstanding having
voting power given at a stockholders' meeting duly called for that
purpose, or when authorized by the written consent of the holders
of a majority of the voting stock issued and outstanding, the
board of directors shall have power and authority to sell, lease
or exchange all of the property and assets of the corporation,
including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may be in
whole or in part shares of stock in, and/or other securities of,
any other corporation or corporations, as its board of directors
shall deem expedient and for the best interests of the
corporation.
The corporation may in its by-laws confer powers upon
its board of directors in addition to the foregoing, and in
addition to the powers and authorities expressly conferred upon it
by statute.
ELEVENTH. Whenever a compromise or arrangement is
proposed between this corporation and its creditors or any class
of them and/or between this corporation and its stockholders or
any class of them, any court of equitable jurisdiction within the
State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this
corporation under the provisions of Section 3883 of the Revised
Code of 1915 of said State, or on the application of trustees in
dissolution or of any receiver or receivers appointed for this
corporation under the provisions of Section 43 of the General
Corporation Law of the State of Delaware, order a meeting of the
creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to
be summoned in such manner as the said Court directs. If a
majority in number representing three-fourths in value of the
creditors or class of creditors,
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and/or of the stockholder or class of stockholders of this corporation,
as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise
or arrangement, the said compromise or arrangement and said reorganization
shall, if sanctioned by the Court to which the said application has been
made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as
the case may be, and also on this corporation.
TWELFTH. Both stockholders and directors shall have
power, if the by-laws so provide, to hold their meetings, and to
have one or more offices within or without the State of Delaware,
and to keep the books of this corporation (subject to the
provisions of the statutes), outside of the State of Delaware at
such places as may be from time to time designated by the board of
directors.
THIRTEENTH. The corporation reserves the right to
amend, alter, change or repeal any provision contained in this
certificate of incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
FOURTEENTH. 1. The affirmative vote or consent of the
holders of ninety-five percent (95%) of all shares of stock of the
Corporation entitled to vote in elections of directors, considered
for the purposes of this Article FOURTEEN as one class, shall be
required for the adoption or authorization of a business
combination (as hereinafter defined) with any other entity (as
hereinafter defined) if, as of the record date for the
determination of stockholders entitled to notice thereof and to
vote thereon or consent thereto, such other entity is the
beneficial owner, directly or indirectly, of more than thirty
percent (30%) of the outstanding shares of stock of the
Corporation entitled to vote in elections of directors considered
for the purposes of this Article FOURTEEN as one class; provided
that such ninety-five per cent (95%) voting requirement shall not
be applicable if:
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(a) The cash, or fair market value of other
consideration, to be received per share by capital
stockholders of the Corporation in such business
combination bears the same or a greater percentage
relationship to the market price of the Corporation's
Capital Stock immediately prior to the announcement of
such business combination as the highest per share price
(including brokerage commissions and/or soliciting
dealers fees) which such other entity has theretofore
paid for any of the shares of the Corporation's Capital
Stock already owned by it bears to the market price of
the Capital Stock of the Corporation immediately prior
to the commencement of acquisition of the Corporation's
Capital Stock by such other entity;
(b) The cash, or fair market value of other
consideration, to be received per share by capital
stockholders of the Corporation in such business
combination (i) is not less than the highest per share
price (including brokerage commissions and/or soliciting
dealers' fees) paid by such other entity in acquiring
any of its holdings of the Corporation's Capital Stock,
and (ii) is not less than the earnings per share of
Capital Stock of the Corporation for the four full
consecutive fiscal quarters immediately preceding the
record date for solicitation of votes on such business
combination, multiplied by the then price/earnings
multiple (if any) of such other entity as customarily
computed and reported in the financial community;
(c) After such other entity has acquired a thirty
per cent (30%) interest and prior to the consummation of
such business combination: (i) such other entity shall
have taken steps to ensure that the Corporation's Board
of Directors included at all times representation by
continuing director(s) (as hereinafter defined)
proportionate to the stockholdings of the Corporation's
public capital stockholders not affiliated with such
other entity (with a continuing director to occupy any
resulting fractional board position); (ii) there shall
have been no reduction in the rate of dividends payable
on the Corporation's Capital Stock except as necessary
to insure that a quarterly dividend payment does not
exceed 12.5% of the net income of the Corporation for
the four full consecutive fiscal quarters immediately
preceding the declaration date of such dividend, or
except as may have been approved by a unanimous vote of
the directors; (iii) such other entity shall not have
acquired any newly issued shares of stock, directly or
indirectly, from the Corporation (except upon conversion
of convertible securities acquired by it prior to
obtaining a thirty per cent (30%) interest or as a
result of a pro rata stock dividend or stock split); and
(iv) such other entity shall not have acquired any
additional shares of the Corporation's outstanding
Capital Stock or securities convertible into Capital
Stock except as a part of the transaction which results
in such other entity acquiring its thirty percent (30%)
interest;
(d) Such other entity shall not have (i) received
the benefit, directly or indirectly (except
proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial assistance or tax
credits provided by the Corporation, or (ii) made any
major change in the Corporation's business or equity
capital structure without the unanimous approval of the
directors, in either case prior to the consummation of
such business combination; and
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<PAGE> 10
(e) A proxy statement responsive to the
requirements of the Securities Exchange Act of 1934 shall
be mailed to public stockholders of the Corporation for
the purpose of soliciting stockholder approval of such
business combination and shall contain at the front
thereof, in a prominent place, any recommendations as to
the advisability (or inadvisability) of the business
combination which the continuing directors, or any of
them, may choose to state and, if deemed advisable by a
majority of the continuing directors, an opinion of a
reputable investment banking firm as to the fairness (or
not) of the terms of such business combination, from the
point of view of the remaining public stockholders of
the Corporation (such investment banking firm to be
selected by a majority of the continuing directors and
to be paid a reasonable fee for their services by the
Corporation upon receipt of such opinion).
The provisions of this Article FOURTEENTH shall also
apply to a business combination with any other entity which at any
time has been the beneficial owner, directly or indirectly, of
more than thirty percent (30%) of the outstanding shares of stock
of the Corporation entitled to vote in elections of directors
considered for the purposes of this Article FOURTEENTH as one
class, notwithstanding the fact that such other entity has reduced
its shareholdings below thirty percent (30%) if, as of the record
date for the determination of stockholders entitled to notice of
and to vote on or consent to the business combination, such other
entity is an "affiliate" of the Corporation (as hereinafter
defined).
2. As used in this Article FOURTEENTH, (a) the term
"other entity" shall include any corporation, person or other
entity and any other entity with which it or its "affiliate" or
"associate" (as defined below) has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of
acquiring, holding, voting or disposing of stock of the
Corporation, or which is its "affiliate" or "associate" as those
terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934 as in effect
on July 1, 1979, together with the successors and assigns of such
persons in any transaction or series of transactions not involving
a public offering of the Corporation's stock within the meaning of
the Securities Act of 1933; (b) another entity shall be deemed to
be the beneficial owner of any shares of stock of the Corporation
which the other entity (as defined above) has the right to acquire
pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or
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<PAGE> 11
otherwise; (c) the outstanding shares of any class of stock
of the Corporation shall include shares deemed owned
through application of clause (b) above but shall not include
any other shares which may be issuable pursuant to any
agreement, or upon exercise of conversion rights, warrants or
options, or otherwise; (d) the term "business combination" shall
include any merger or consolidation of the Corporation with or
into any other corporation, or the sale or lease of all or any
substantial part of the assets of the Corporation to, or any sale
or lease to the Corporation or any subsidiary thereof in exchange
for securities of the Corporation of any assets (except assets
having an aggregate fair market value of less than $5,000,000) of
any other entity; (e) the term "continuing director" shall mean a
person who was a member of the Board of Directors of the
Corporation elected by the public stockholders prior to the time
that such other entity acquired in excess of ten percent (10%) of
the stock of the Corporation entitled to vote in the election of
directors, or a person recommended to succeed a continuing
director by a majority of continuing directors; and (f) for the
purposes of subparagraphs 1(a) and (b) of this Article FOURTEENTH
the term "other consideration to be received" shall mean Capital
Stock of the Corporation retained by its existing public
stockholders in the event of a business combination with such
other entity in which the Corporation is the surviving
corporation.
3. A majority of the continuing directors shall have
the power and duty to determine for the purposes of this Article
FOURTEENTH on the basis of information known to them whether
(a) such other entity beneficially owns more than thirty percent
(30%) of the outstanding shares of stock of the Corporation
entitled to vote in election of directors, (b) an other entity is
an "affiliate" or "associate" (as defined above) of another,
(c) an other entity has an agreement, arrangement or understanding
with another, or (d) the assets being acquired by the Corporation,
or any subsidiary thereof, have an aggregate fair market value of
less than $5,000,000.
4. No amendment to the Certificate of Incorporation of
the Corporation shall amend, alter, change or repeal any of the
provisions of this Article FOURTEENTH, unless the amendment
effecting such amendment, alteration, change or repeal shall
receive the affirmative
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<PAGE> 12
vote or consent of the holders of ninety-five percent
(95%) of all shares of stock of the Corporation entitled
to vote in election of directors, considered for the
purposes of this Article FOURTEENTH as one class; provided
that this paragraph 4 shall not apply to, and such ninety-five
percent (95%) vote or consent shall not be required for, any
amendment, alteration, change or repeal unanimously recommended to
the stockholders by the Board of Directors of the Corporation if
all of such directors are persons who would be eligible to serve
as "continuing directors" within the meaning of paragraph 2 of
this Article FOURTEENTH.
5. Nothing contained in this Article FOURTEENTH shall
be construed to relieve any other entity from any fiduciary
obligation imposed by law.
FIFTEENTH. 1. To the fullest extent that the law of
the State of Delaware, as the same exists or may hereafter be
amended, permits elimination of the personal liability of
directors, no director of this Corporation shall be personally
liable to this Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
2. The provisions of this Article FIFTEENTH shall be
deemed to be a contract with each director of this Corporation who
serves as such at any time while this Article FIFTEENTH is in
effect, and each such director shall be deemed to be serving as
such in reliance on the provisions of this Article FIFTEENTH. Any
amendment or repeal of this Article FIFTEENTH or adoption of any
By-Law of this Corporation or other provision of the Certificate
of Incorporation of this Corporation which has the effect of
increasing director liability shall operate prospectively only and
shall not affect any action taken, or any failure to act, by a
director of this Corporation prior to the effectiveness of such
amendment, repeal, By-Law or other provisions.
SIXTEENTH. 1. RIGHT TO INDEMNIFICATION. Except as
prohibited by law, every director and officer of the Corporation
shall be entitled as of right to be indemnified by the Corporation
against reasonable expenses and any liability paid or incurred by
such person in
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<PAGE> 13
connection with any actual or threatened claim, action, suit
or proceeding, civil, criminal, administrative, investigative
or other, whether brought by or in the right of the Corporation
or otherwise, in which he or she may be involved, as a
party or otherwise, by reason of such person being or having been
a director or officer of the Corporation or by reason of the fact
that such person is or was serving at the request of the
Corporation as a director, officer, employee, fiduciary or other
representative of another corporation, partnership, joint venture,
trust, employee benefit plan or other entity (such claim, action,
suit or proceeding hereinafter being referred to as an "Action");
provided, however, that no such right to indemnification shall
exist with respect to an Action brought by an indemnitee (as
defined below) against the Corporation (an "Indemnitee Action")
except as provided in the last sentence of this Paragraph 1.
Persons who are not directors or officers of the Corporation may
be similarly indemnified in respect of service to the Corporation
or to another such entity at the request of the Corporation to the
extent the Board of Directors of the Corporation at any time
denominates any of such persons as entitled to the benefits of
this Article SIXTEENTH. As used in this Article SIXTEENTH,
"indemnitee" shall include each director and officer of the
Corporation and each other person denominated by the Board of
Directors of the Corporation as entitled to the benefits of this
Paragraph 1; "expenses" shall include fees and expenses of counsel
selected by an indemnitee and "liability" shall include amounts of
judgments, excise taxes, fines, penalties and amounts paid in
settlement. An indemnitee shall be entitled to be indemnified
pursuant to this Paragraph 1 against expenses incurred in
connection with an Indemnitee Action only if (i) the Indemnitee
Action is instituted under Paragraph 3 of this Article SIXTEENTH
and the indemnitee is successful in whole or in part in such
Indemnitee Action, (ii) the indemnitee is successful in whole or
in part in another Indemnitee Action for which expenses are
claimed or (iii) the indemnification for expenses is included in a
settlement of, or is awarded by a court in, such other Indemnitee
Action.
2. RIGHT TO ADVANCEMENT OF EXPENSES. Every indemnitee
shall be entitled as of right to have the expenses of the
indemnitee in defending any Action or in bringing and pursuing any
Indemnitee Action under Paragraph 3 of this Article SIXTEENTH paid
in advance by the Corporation prior to final disposition of the
Action or Indemnitee Action provided that the
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<PAGE> 14
Corporation receives a written undertaking by or on behalf of the
indemnitee to repay the amount advanced if it should ultimately be
determined that the indemnitee is not entitled to be indemnified
for the expenses.
3. RIGHT OF INDEMNITEE TO BRING ACTION. If a written
claim for indemnification under Paragraph 1 of this Article
SIXTEENTH or for advancement of expenses under Paragraph 2 of this
Article SIXTEENTH is not paid in full by the Corporation within
30 days after the claim has been received by the Corporation, the
Indemnitee may at any time thereafter bring an Indemnitee Action
to recover the unpaid amount of the claim and, if successful in
whole or in part, the indemnitee shall also be entitled to be paid
the expense of bringing and pursuing such Indemnitee Action. The
only defense to an Indemnitee Action to recover on a claim for
indemnification under Paragraph 1 of this Article SIXTEENTH shall
be that the conduct of the indemnitee was such that under Delaware
law the Corporation is prohibited from indemnifying the indemnitee
for the amount claimed, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal
counsel and stockholders) to have made a determination prior to
the commencement of such Indemnitee Action that indemnification of
the indemnitee is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of
Directors, independent legal counsel or stockholders) that the
conduct of the indemnitee was such that indemnification is
prohibited by Delaware law, shall be a defense to such Indemnitee
Action or create a presumption that the conduct of the indemnitee
was such that indemnification is prohibited by Delaware law. The
only defense to an Indemnitee Action to recover on a claim for
advancement of expenses under Paragraph 2 of this Article
SIXTEENTH shall be failure by the indemnitee to provide the
undertaking required by Paragraph 2 of this Article SIXTEENTH.
4. FUNDING AND INSURANCE. The Corporation may create
a trust fund, grant a security interest, cause a letter of credit
to be issued or use other means (whether or not similar to the
foregoing) to ensure the payment of all sums required to be paid
by the Corporation to effect indemnification as provided in this
Article SIXTEENTH. The Corporation may purchase and
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<PAGE> 15
maintain insurance to protect itself and any indemnitee against any
expenses or liability incurred by the indemnitee in connection
with any Action, whether or not the Corporation would have the
power to indemnify the indemnitee against the expenses or
liability by law or under the provisions of this Article
SIXTEENTH.
5. NON-EXCLUSIVITY; NATURE AND EXTENT OF RIGHTS. The
rights to indemnification and advancement of expenses provided for
in this Article SIXTEENTH shall (i) not be deemed exclusive of any
other rights, whether now existing or hereafter created, to which
any indemnitee may be entitled under any agreement, provision in
the Certificate of Incorporation or By-laws of the Corporation,
vote of stockholders or disinterested directors or otherwise,
(ii) be deemed to create contractual rights in favor of each
indemnitee who serves the Corporation at any time while this
Section 5 is in effect (and each such indemnitee shall be deemed
to be so serving in reliance on the provisions of this Section 5),
(iii) continue as to each indemnitee who has ceased to have the
status pursuant to which the indemnitee was entitled or was
denominated as entitled to indemnification under this Article
SIXTEENTH and shall inure to the benefit of the heirs and legal
representatives of each indemnitee and (iv) be applicable to
Actions commenced after the effectiveness of this Article
SIXTEENTH, whether arising from acts or omissions occurring before
or after the effectiveness of this Article SIXTEENTH. Any
amendment or repeal of this Article SIXTEENTH or adoption of any
By-Law of this Corporation or other provision of the Certificate
of Incorporation of this Corporation which has the effect of
limiting in any way the rights to indemnification or advancement
of expenses provided for in this Article SIXTEENTH shall operate
prospectively only and shall not affect any action taken, or any
failure to act, by an indemnitee prior to the effectiveness of any
such amendment, repeal, By-law or other provision.
6. PARTIAL INDEMNITY. If an indemnitee is entitled
under any provision of this Article SIXTEENTH to indemnification
by the Corporation for some or a portion of the expenses or a
liability paid or incurred by the indemnitee in the preparation,
investigation, defense, appeal or settlement of any Action or
Indemnitee Action but not, however, for the total amount thereof,
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<PAGE> 16
the Corporation shall indemnify the indemnitee for the portion of
such expenses or liability to which the indemnitee is entitled.
WE, THE UNDERSIGNED, being each of the incorporators
hereinbefore named for the purpose of forming a corporation to do
business both within and without the State of Delaware, and in
pursuance of the General Corporation Law of the State of Delaware,
being Chapter 65 of the Revised Code of Delaware, and the acts
amendatory thereof and supplemental thereto, do make this
certificate, hereby declaring and certifying that the facts herein
stated are true, and accordingly have hereunto set our hands and
seals this 23rd day of June, A.D. 1931.
In presence of
Harold E. Grantland C.S. Peabbles (Seal)
H.H. Snow (Seal)
L.H. Herman (Seal)
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<PAGE> 17
STATE OF DELAWARE )
) SS
COUNTY OF NEW CASTLE )
BE IT REMEMBERED, that on this 23rd day of June, A.D.
1931, personally came before me, Harold E. Grantland, a Notary
Public for the State of Delaware, C.S. Peabbles, H.H. Snow, L.H.
Herman, all of the parties to the foregoing certificate of
incorporation, known to me personally to be such, and severally
acknowledged the said certificate to be the act and deed of the
signers respectively and that the facts therein stated are truly
set forth.
GIVEN under my hand and seal of office the day and year
aforesaid.
Harold E. Grantland
Notary Public
Harold E. Grantland
Notary Public
Appointed January 12, 1931
State of Delaware
Term Two Years
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<PAGE> 1
Exhibit 4
AMENDMENT NO. 5 TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 5 TO CREDIT AGREEMENT ("Amendment No. 5") dated as
of July 7, 1995 by and among Quaker State Corporation, a Delaware Corporation
(the "Borrower"), the Banks party to the Credit Agreement (as hereinafter
defined) and PNC Bank, National Association (formerly Pittsburgh National
Bank), a national banking association, as agent for the Banks (the "Agent");
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain Credit
Agreement, dated as of March 31, 1992, pursuant to which the Banks agreed to
make revolving credit loans to the Borrower not to exceed $45,000,000, all on
the terms and conditions set forth therein, as amended by that certain
Amendment No. 1 to Credit Agreement dated as of September 30, 1992 and as
further amended by that certain Amendment No. 2 to Credit Agreement dated as of
August 16, 1993, and as further amended by that certain Amendment No. 3 to
Credit Agreement dated as of August 1, 1994, and as further amended by that
certain Amendment No. 4 to Credit Agreement dated as of September 30, 1994 (the
"Credit Agreement"); and
WHEREAS, the Borrower, the Banks and the Agent hereby desire to amend
the Credit Agreement as hereinafter provided.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally
bound hereby, covenant and agree as follows:
1. DEFINITIONS.
Defined terms used herein unless otherwise defined herein shall have
the meanings ascribed to them in the Credit Agreement.
2. AMENDMENT OF CREDIT AGREEMENT.
The parties hereto do hereby modify and amend the Credit Agreement as
follows;
A. Article I, Section 1.01 [Certain Definitions] is hereby
amended as follows:
(i) The definition of "Expiration Date" is hereby amended and
restated to read as follows:
<PAGE> 2
Expiration Date shall mean, with respect to the Commitments,
June 30, 1998 or such later date determined pursuant to Section
2.08 hereof.
(ii) The definition of "Fifth Amendment Effective Date" is
hereby inserted between the definitions of "Federal Funds Effective
Rate" and "Fixed Charges", as follows:
Fifth Amendment Effective Date shall mean the effective date of
that certain Amendment No. 5 to Credit Agreement, which date is
July 7, 1995.
B. Article II, Section 2.03 [Commitment Fees, p.17] is hereby
amended and restated to read as follows:
2.03 Commitment Fees. Accruing from the date hereof until the
Expiration Date, the Borrower agrees to pay to the Agent for the
account of each Bank, as consideration for such Bank's Commitment
hereunder, a commitment fee (the "Commitment Fee") (computed on the
basis of a year of 360 days and actual days elapsed) on the average
daily unborrowed amount of such Bank's Commitment as the same may be
constituted from time to time equal to the following, with any
changes in rates to be effective as provided in Section 3.01
hereof:
(i) one-fourth percent (1/4%) per annum for any period prior to
the Fifth Amendment Effective Date during which the Borrower's
long-term debt is rated greater than BB+ by Standard and Poors'
Corporation ("S&P") or Ba1 by Moody's Investor Services, Inc.
("Moody's") (utilizing the lower of such ratings);
(ii) three-eighths percent (3/8%) per annum for any period
prior to the Fifth Amendment Effective Date during which Borrower's
long-term debt is rated less than or equal to BB+ by S&P or Ba1 by
Moody's (utilizing the lower of such ratings) or is not rated by
S&P or Moody's;
(iii) one-tenth percent (1/10%) per annum for any period on or
after the Fifth Amendment Effective Date during which Borrower's
long-term debt is rated greater than or equal to A by S&P or A1 by
Moody's (utilizing the lower of such ratings);
(iv) one-eighth percent (1/8%) per annum for any period on or
after the Fifth Amendment Effective Date during which Borrower's
long-term debt is rated less than A by S&P or A1 by Moody's
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<PAGE> 3
but greater than or equal to BBB+ by S&P or Baa1 by Moody's
(utilizing the lower of such ratings);
(v) three-twentieths percent (3/20%) per annum for any period
on or after the Fifth Amendment Effective Date during which
Borrower's long-term debt is rated less than BBB+ by S&P or Baa1 by
Moody's but greater than or equal to BBB by S&P or Baa2 by Moody's
(utilizing the lower of such ratings);
(vi) seven-fortieths percent (7/40%) per annum for any period
on or after the Fifth Amendment Effective Date during which
Borrower's long-term debt is rated less than BBB by S&P or Baa2 by
Moody's but greater than or equal to BBB- by S&P or Baa3 by Moody's
(utilizing the lower of such ratings); and
(vii) one-quarter percent (1/4%) per annum for any period on or
after the Fifth Amendment Effective Date during which Borrower's
long-term debt is rated less than BBB- by S&P or Baa3 by Moody's or
is not rated by S&P or Moody's (utilizing the lower of such
ratings).
All Commitment Fees shall be payable in arrears on the last
Business Day of each June, September, December and March after the
date hereof and on the Expiration Date or upon acceleration of the
Notes.
C. Article III, Section 3.01(a) [Interest Rate Options, p.19],
Subsection (ii) [Euro-Rate Option, p.20] is hereby amended and
restated to read as follows:
(ii) Euro-Rate Option: A rate per annum (computed on the basis
of a year of 360 days and actual days elapsed) equal to the
Euro-Rate plus:
(s) for any period prior to the Fifth Amendment
Effective Date during which the Borrower's long-term debt is
rated greater than BBB+ by S&P or Baa1 by Moody's (utilizing
the lower of such ratings), three-eighths percent (3/8%);
(t) for any period prior to the Fifth Amendment
Effective Date during which the Borrower's long-term debt is
rated less than or equal to BBB+ by S&P or Baa1 by Moody's but
greater than BB+ by S&P or Ba1 by Moody's (utilizing the lower
of such ratings), one-half percent (1/2);
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<PAGE> 4
(u) for any period prior to the Fifth Amendment
Effective Date during which the Borrower's long-term debt is
rated less than or equal to BB+ by S&P or Ba1 by Moody's
(utilizing the lower of such ratings) or is no longer rated by
either S&P or Moody's, three-quarters percent (3/4%);
(v) for any period on or after the Fifth Amendment
Effective Date during which the Borrower's long-term debt is
rated greater than or equal to A by S&P or A1 by Moody's
(utilizing the lower of such ratings), eleven-fortieths
percent (11/40%);
(w) for any period on or after the Fifth Amendment
Effective Date during which the Borrower's long-term debt is
rated less than A by S&P or A1 by Moody's but greater than or
equal to BBB+ by S&P or Baa1 by Moody's (utilizing the lower
of such ratings), seven-twentieths percent (7/20%);
(x) for any period on or after the Fifth Amendment
Effective Date during which the Borrower's long-term debt is
rated less than BBB+ by S&P or Baa1 by Moody's but greater
than or equal to BBB by S&P or Baa2 by Moody's (utilizing the
lower of such ratings), seventeen-fortieths percent (17/40%);
(y) for any period on or after the Fifth Amendment
Effective Date during which the Borrower's long-term debt is
rated less than BBB by S&P or Baa2 by Moody's but greater than
or equal to BBB- by S&P or Baa3 by Moody's (utilizing the
lower of such ratings), one-half percent (1/2); and
(z) for any period on or after the Fifth Amendment
Effective Date during which the Borrower's long-term debt is
rated less than BBB-by S&P or Baa3 by Moody's or is not rated
by S&P or Moody's (utilizing the lower of such ratings),
three-quarters percent (3/4%).
3. Conditions of Effectiveness. The effectiveness of this Amendment No.
5 is expressly conditioned upon: (i) the Agent's receipt of counterparts of
this Amendment No. 5 duly executed by the Borrower and each of the Banks; and
(ii) the Agent's receipt of a certificate signed by the Secretary or Assistant
Secretary of the Borrower, dated as of a date satisfactory to the Agent,
certifying as to all action taken by the Borrower to authorize the execution,
delivery and performance of this Amendment No. 5.
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<PAGE> 5
4. MISCELLANEOUS.
A. Except as expressly modified and amended by this Amendment No. 5,
the Credit Agreement and the other Loan Documents are hereby ratified and
confirmed and shall remain in full force and effect.
B. The Borrower affirms the representations and warranties made by it
to the Banks in Article V of the Credit Agreement as of the date hereof (except
representations and warranties which expressly relate to an earlier date or
time, which representations and warranties shall be true and correct on and as
of the specific dates or times referred to therein). The Borrower represents
and warrants to the Banks that no Event of Default or Potential Default has
occurred and is continuing, and the execution and performance of this Amendment
No. 5 shall not give rise to an Event of Default or Potential Default.
5. Counterparts. This Amendment No. 5 may be executed by different
parties hereto in any number of separate counterparts, each of which, when so
executed and delivered shall be an original and all of such counterparts shall
together constitute one and the same instrument.
6. Governing Law. This Amendment No. 5 shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Pennsylvania.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto by their officers duly
authorized, have executed this Amendment No. 5 as of the day and year first
above written.
BORROWER;
QUAKER STATE CORPORATION
By: /s/ C. A. CONRAD
---------------------------
Name: C. A. Conrad
Title: Vice Chairman and CFO
BANKS:
PNC BANK, NATIONAL ASSOCIATION
Individually and as Agent
By: /s/ LOUIS R. CESTELLO
---------------------------
Louis R. Cestello
Assistant Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ JAMES FINCH
---------------------------
James Finch
Vice President
INTEGRA BANK (successor in
interest to INTEGRA NATIONAL
BANK/NORTH)
By : /s/ EDWARD R. SAY
---------------------------
Edward R. Say
Vice President
-6-
<PAGE> 1
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
6/30/95 6/30/94 6/30/95 6/30/94
------------------------------------------------------------------------------------------------------------------------------
(in thousands except per share data, unaudited)
<S> <C> <C> <C> <C>
1. Net income (loss) ($3,225) $5,069 $2,371 $10,652
==============================================================================================================================
2. Average number of shares of capital stock outstanding 31,496 27,256 31,484 27,268
3. Shares issuable upon exercise of dilutive stock
options outstanding during the period, based on
average market prices 100 104 107 90
4. Shares issuable upon exercise of dilutive stock
options outstanding during the period, based on
higher of average or period-end market prices 155 104 134 90
5. Average number of capital and capital equivalent
shares outstanding (2 + 3) 31,596 27,360 31,591 27,358
6. Average number of capital shares outstanding,
assuming full dilution (2 + 4) 31,651 27,360 31,618 27,358
7. Net income (loss) per capital and capital equivalent share
(1 divided by 5) ($.10) $.19 $.08 $.39
==============================================================================================================================
8. Net income (loss) per capital share assuming full dilution
(1 divided by 6) ($.10) $.19 $.08 $.39
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,648
<SECURITIES> 0
<RECEIVABLES> 107,969
<ALLOWANCES> 3,049
<INVENTORY> 75,146
<CURRENT-ASSETS> 261,332
<PP&E> 402,088
<DEPRECIATION> 202,126
<TOTAL-ASSETS> 631,695
<CURRENT-LIABILITIES> 131,388
<BONDS> 0
<COMMON> 31,514
0
0
<OTHER-SE> 216,866
<TOTAL-LIABILITY-AND-EQUITY> 631,695
<SALES> 497,231
<TOTAL-REVENUES> 502,840
<CGS> 278,235
<TOTAL-COSTS> 354,136
<OTHER-EXPENSES> 145,427
<LOSS-PROVISION> 654
<INTEREST-EXPENSE> 3,118
<INCOME-PRETAX> (495)
<INCOME-TAX> (188)
<INCOME-CONTINUING> (307)
<DISCONTINUED> 2,678
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,371
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
